Social preference under twofold uncertainty
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Social preference under twofold uncertainty Philippe Mongin1
· Marcus Pivato2
Received: 10 November 2017 / Accepted: 5 November 2019 © Springer-Verlag GmbH Germany, part of Springer Nature 2019
Abstract We investigate the conflict between the ex ante and ex post criteria of social welfare in a new framework of individual and social decisions, which distinguishes between two sources of uncertainty, here interpreted as being objective and subjective, respectively. This framework makes it possible to endow the individuals and society not only with ex ante and ex post preferences, as is usually done, but also with interim preferences of two kinds, and correspondingly, to introduce interim forms of the Pareto principle. After characterizing the two social welfare criteria, we present two compromises between them, one based on the ex ante criterion and absorbing as much as possible of the ex post criterion (Theorem 1), the other based on the ex post criterion and absorbing as much as possible of the ex ante criterion (Theorem 2). Both solutions translate the assumed Pareto conditions into weighted additive utility representations, as in Harsanyi’s Aggregation Theorem, and both attribute to the individuals common probability values on the objective source of uncertainty, and different probability values on the subjective source. We discuss these solutions in terms of the by now classic spurious unanimity argument and a novel informational argument labeled complementary ignorance. The paper complies with the standard economic methodology of basing probability and utility representations on preference axioms. Keywords Ex ante social welfare · Ex post social welfare · Objective versus subjective uncertainty · Objective versus subjective probability · Pareto principle · separability · Harsanyi Social Aggregation theorem · Spurious unanimity · Complementary ignorance
The authors thank an anonymous referee and the editors for their detailed advice on this paper. The authors benefited from comments from Takashi Hayashi, Michele Lombardi, Hervé Moulin and Clemens Puppe during seminar presentations. The first author acknowledges support from the Wissenschaftskolleg zu Berlin and the Investissements d’Avenir (ANR-11-IDEX-0003/Labex Ecodec/ANR-11-LABX-0047), and the second author from NSERC Grant #262620-2008, Labex MME-DII (ANR11-LBX-0023-01) and CHOp (ANR-17-CE26-0003).
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Philippe Mongin [email protected]
Extended author information available on the last page of the article
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P. Mongin, M. Pivato
JEL Classification D70 · D81
1 Introduction Any normative analysis of collective decisions under uncertainty must confront an old and unresolved problem: the conflict between the ex ante and ex post criteria of social welfare. This paper proposes new solutions to this problem, which are based on a distinction between two sources of uncertainty. In our framework, agents may hold different beliefs about one source while holding the same beliefs about the other. Before explaining what difference this twofold uncertainty makes, we r
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