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Arrow 75

Arrow 75

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Rawls's Principle of Just SavingAuthor(s): Kenneth J. ArrowReviewed work(s):Source:
The Swedish Journal of Economics,
Vol. 75, No. 4 (Dec., 1973), pp. 323-335Published by:
on behalf of
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RAWLS'SRINCIPLEFJUSTSAVING*
KennethJ.Arrow
HarvardUniversity,Cambridge,Massachusetts,USA
1.The Problem andtheModel
Theproblemofjusticein the distribution ofresources isofcoursebasic. Atno timein thehistoryof economicthinkinghas there been athoroughlyagreed-oncriterion,butat leastamongthemorephilosophiccirclesofeconomists autilitariancriterionhasbeenmore orlessaccepted.Thatis,weassume thereexistsfor each individualianinterpersonally meaningfulcardinalutilityfunc-tion,U7(c),wherec,is theconsumptionoftheithindividual;then ajustoroptimaldistributionisonewhichmaximizes,
U(c,)
where thevariablesc,are constrainedby technology,initialresources,and in-formationaland otherdifficultiesintransferring goodsamongindividuals.Rawls[1971]hasproposedanalternativecriterionforjustallocation. Heimaginesalltheindividualsinthesociety getting togetherinan"originalposition"where each knows thepossibleresource allocations but nooneknowswhich memberof thesocietyheisgoingto be.Theymustdecide onacriterionfunction forthedistributionofgoods.Then,heargues,theywill finditra-tional toagreenot on thesum-of-utilitiescriterionbutontheruleofmaximiz-ingthewelfareof the least well-offmemberof thesociety(sincethismightbeanyone ofthem),i.e.,theymaximize,
minUj(ci)
subjectto the same constraints onthevariablesc,.IignoreheretherichnessofRawls'sdiscussion,someotherconstraintsheimposesontheallocationof re-sources(particularlysettinganinfinitelyhighervalue onlibertythan ongoods),
*ThisworkwassupportedinpartbyNational Science FoundationGrantGS-3269-A2totheInstitute forMathematical Studiesinthe SocialSciences,StanfordUniversity.Thispaperwasbegunat ChurchillCollege, duringtheauthor'stenureofaJohn SimonGuggen-heimMemorialFellowship,andcompletedat StanfordUniversity.I amindebtedtoParthaDasgupta,discussions with whomfocusedmydiffuseinterestinRawls'stheoryofjustsavingintoseekingan exactcharacterization,to FrankHahnformanyhoursspentindiscardingfalsesolutions,andof courseto John Rawls whoseprofoundworkhascausedusalltoreconsidersimple-mindedutilitarianism. Forfurtherdiscussions ofthisandotheraspectsofRawls'stheoryofjustice,seeDasgupta[1974]and Arrow[1973].Swed.I.ofEconomics1973
 
324 K.J. Arrowand thevalidityof Rawls'sreasoningfromtheoriginal positiontothe maximincriterionl(seeArrow[1973]for remarkson someofthesematters).Oneimportantaspectofjusticeistheintertemporal.What isajustalloca-tion ofgoodsamongindividualsofdifferentgenerations?Theintertemporalproblemofjusticediffersfrom thecontemporaryproblemfundamentally onlyinoneempiricalpoint:namely,that resourcesareproductive,sothat a trans-ferfromanearlier to alatergenerationmeans,ingeneral,that the latergen-erationreceives more(measuredincommodityunits)thanthe earliergenera-tiongave up.Inthiscase,ouregalitarian presuppositionsaresomewhatupset;clearly,if we haveany regardat all forthefuturegenerations(as justicede-mands)andifthegainfromwaitingissufficiently great,then we willwanttosacrificesome forthe benefit of futureindividualseveniftheyare,tobeginwith,somewhatbetteroffthan we are.Wewill not do thisindefinitely;thisisusuallyformalizedby assumingthattheyandwe havediminishingmar-ginalutility,sothat at somepointthegainincommodityterms ceasesto beagaininutilityterms.Wewill introduceavery simplemodelofproductionto illustratethispoint,and thenanalyzetheimplicationsof Rawls'scriterionofjusticeinthis con-text.Weassumethereisbutonegood.Withineachgeneration,all individualsarealike,sothat wemayassumethat thereisonlyone.Thisalsoimpliesastationarypopulation;theadjustmenttogrowing populationsiseasyandmerelydistractsattentionfrom ouranalysisof themeaningofjustice.Theonegoodcaneither be consumedorused ascapitalwhichbearsa return.LetKtbe theaccumulatedcapitalat thebeginningof timeperiodt.At thatmoment,partofthestock,ct,isconsumed,and theremainder,Kt-ct,isusedinproduc-tion.Eachunit sousedyieldsaunits at thebeginningofthe next timeperiod,sothat,
Kt+-=(Kt-ct)(1.1)
Unlessotherwisespecified,it will be understood thattheeconomyis in factproductive,so that oneunit investedyieldsmore than oneunit ofoutput,i.e.,>1(1.2)Theindividual at time t derivessatisfactionfromtheconsumption,ct;it isassumed thattheamountofsatisfactionorfelicityfromany givenconsumptionis thesameforallt, i.e.,thereisa functionU(c)suchthattheanalogueofthesum-of-utilitiescriterionis themaximizationofUt(ct)
t-O1Vickrey[1945,p.329; 1960,pp.523f.]andHarsanyi[1953,1955]haveusedan"originalposition"argumenttojustifymaximizingthe sumofutilities.Swed. I.ofEconomics 1973

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