Concept of Social Welfare
“The overall welfare of society essentially depends on the individual utility level”. This statement highlights the central role of individual satisfaction or utility in determining the well-being of society as a whole. Various social welfare functions in economics build on this concept, each offering a different approach to aggregating society’s welfare from individual utility levels. Additionally, public intervention becomes crucial, particularly in addressing problems like negative externalities, which can harm societal welfare. Below, we explore different approaches to social welfare functions.
Approaches to Social Welfare Functions
- Family-Centric Approach
This approach emphasizes the family as the primary provider of welfare. Family structures influence the well-being of individuals, and public welfare systems complement family efforts rather than replace them.- Relevance to Utility: Individual utility is derived from family support systems, so societal welfare improves when families are stable and self-sufficient. Public policies in this model focus on supporting families indirectly, ensuring they can care for their members.
- Example: Policies that provide tax benefits to families or support family caregiving roles align with this approach.
- Residual Perspective
The residual approach sees public welfare as a last resort, stepping in only when individuals or families are unable to meet their own needs. People see welfare as a temporary solution in times of crisis.- Relevance to Utility: Individuals primarily derive their utility from their own efforts and family resources. Public intervention is minimal and reactive.
- Example: Programs like unemployment benefits or food stamps activate only when individuals fall below a certain utility threshold, reflecting this approach.
- Mixed-Economy Approach
In this approach, both public and private sectors contribute to welfare. The state, private institutions, and individuals all play a role in ensuring societal welfare.- Relevance to Utility: Individual utility is influenced by a combination of personal effort, family resources, and public services. A balanced approach between market forces and government intervention maximizes overall welfare.
- Example: Public healthcare systems supplemented by private insurance options or state-subsidized education coexisting with private schools embody the mixed-economy approach.
- Institutional Approach
The institutional approach views welfare programs as integral to societal well-being, with the government playing a central role in providing universal services to maintain individual utility at a basic level.- Relevance to Utility: Continuous public intervention safeguards individual welfare and ensures a minimum utility level for all citizens.
- Example: Universal healthcare, public pensions, and free education are examples of institutional approaches where public intervention ensures that no one falls below a certain welfare level.
