Summary[ edit ] Mill took many elements of his version of utilitarianism from Jeremy Benthamthe great nineteenth-century legal reformer, who along with William Paley were the two most influential English utilitarians prior to Mill. Like Bentham, Mill believed that happiness or pleasure, which both Bentham and Mill equated with happiness was the only thing humans do and should desire for its own sake.
Long run declining average costs in a natural monopoly. Certain types of taxes and tariffs. To determine whether an activity is moving the economy towards Pareto efficiency, two compensation tests have been developed.
Any change usually makes some people better off while making others worse off, so these tests ask what would happen if the winners were to compensate the losers. Using the Kaldor criterion, an activity will contribute to Pareto optimality if the maximum amount the gainers are prepared to pay is greater than the minimum amount that the losers are prepared to accept.
Under the Hicks criterion, an activity will contribute to Pareto optimality if the maximum amount the losers are prepared to offer to the gainers in order to prevent the change is less than the minimum amount the gainers are prepared to accept as a bribe to forgo the change.
The Hicks compensation test is from the losers' point of view, while the Kaldor compensation test is from the gainers' point of view. If both conditions are satisfied, both gainers and losers will agree that the proposed activity will move the economy toward Pareto optimality. This is referred to as Kaldor—Hicks efficiency or the Scitovsky criterion.
Equity[ edit ] There are many combinations of consumer utility, production mixes, and factor input combinations consistent with efficiency. In fact, there are an infinity of consumption and production equilibria that yield Pareto optimal results.
There are as many optima as there are points on the aggregate production—possibility frontier. Hence, Pareto efficiency is a necessary, but not a sufficient condition for social welfare.
Each Pareto optimum corresponds to a different income distribution in the economy. Some may involve great inequalities of income.
So how do we decide which Pareto optimum is most desirable? This decision is made, either tacitly or overtly, when we specify the social welfare function.
This function embodies value judgements about interpersonal utility. The social welfare function shows the relative importance of the individuals that comprise society. A utilitarian welfare function also called a Benthamite welfare function sums the utility of each individual in order to obtain society's overall welfare.
All people are treated the same, regardless of their initial level of utility. One extra unit of utility for a starving person is not seen to be of any greater value than an extra unit of utility for a millionaire.
At the other extreme is the Max-Min, or Rawlsian utility function Stiglitz,p [incomplete reference]. According to the Max-Min criterion, welfare is maximized when the utility of those society members that have the least is the greatest.
No economic activity will increase social welfare unless it improves the position of the society member that is the worst off. Most economists specify social welfare functions that are intermediate between these two extremes.
The social welfare function is typically translated into social indifference curves so that they can be used in the same graphic space as the other functions that they interact with.
A utilitarian social indifference curve is linear and downward sloping to the right.
The Max-Min social indifference curve takes the shape of two straight lines joined so as they form a degree angle. A social indifference curve drawn from an intermediate social welfare function is a curve that slopes downward to the right.
The intermediate form of social indifference curve can be interpreted as showing that as inequality increases, a larger improvement in the utility of relatively rich individuals is needed to compensate for the loss in utility of relatively poor individuals.
A crude social welfare function can be constructed by measuring the subjective dollar value of goods and services distributed to participants in the economy see also consumer surplus. Fundamental theorems of welfare economics The field of welfare economics is associated with two fundamental theorems.
The first states that given certain assumptions, competitive markets price equilibria with transfers, e. Walrasian equilibria  produce Pareto efficient outcomes. Because of welfare economics' close ties to social choice theoryArrow's impossibility theorem is sometimes listed as a third fundamental theorem.
Numerous utility functions can be derived, one for each point on the production possibility frontier PQ in the diagram above.
A social utility frontier also called a grand utility frontier can be obtained from the outer envelope of all these utility functions.
Each point on a social utility frontier represents an efficient allocation of an economy's resources; that is, it is a Pareto optimum in factor allocation, in production, in consumption, and in the interaction of production and consumption supply and demand.The significance of utilitarianism is that for the individual practicing it, it can lead to compassion and Love, which provide truer answers or solutions to choices of thought, word, and deed, and ultimately is the only method of living that points toward infallibility, since it obviates forgiveness.
John Stuart Mill (–) was the most famous and influential British philosopher of the nineteenth century. He was one of the last systematic philosophers, making significant contributions in logic, metaphysics, epistemology, . Pages. Home. Hinduism & Quantum Physics Alphabetical Listing Amazing Science Vedic Mathematics Oldest Civilization Aryan Language Family Hindu Festivals John Stuart Mill: Ethics.
The ethical theory of John Stuart Mill () is most extensively articulated in his classical text Utilitarianism (). Its goal is to justify the utilitarian principle as the foundation of morals. This principle says actions are right in proportion as they tend to promote overall human happiness.
The Value Structure of Action. The distinctions between means and ends, and between being and doing, result in the following structure of action, from beginning to middle to end, upon which much ethical terminology, and the basic forms of ethical theory (ethics of virtues, action, and consequences), are based.
So, utilitarianism is not simply a matter of counting preferences. Bentham usually referred to utilitarianism’s goal as the greatest happiness (which allows for measuring the intensity of pleasure and pain) rather than the greatest.