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Optimal Policy When Effects on Distribution are Uncertain

Author

Listed:
  • James C. Ohls

    (Princeton University)

  • John E. Kwoka jr.

    (University of North Carolina at Chapel Hill)

Abstract

The paper addresses the question of whether a government seeking to maximize a social welfare function should undertake a policy when it is known for sure that the efficiency effects of the policy are positive, but when the effects of the policy on the distribution of income are uncertain. The principal conclusion of the paper is that the existence of efficiency gains in such a situation is not, in general, sufficient to guarantee that such a policy is optimal. In particular, the answer to the question posed in the paper is shown to depend, in part, on the degree to which society is risk-loving or risk-averse with regard to uncertain changes in the distribution of income.

Suggested Citation

  • James C. Ohls & John E. Kwoka jr., 1975. "Optimal Policy When Effects on Distribution are Uncertain," Public Finance Review, , vol. 3(2), pages 123-130, April.
    • Handle: RePEc:sae:pubfin:v:3:y:1975:i:2:p:123-130
    DOI: 10.1177/109114217500300202
    as

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    References listed on IDEAS

    as
    1. Thurow, Lester C, 1970. "Analyzing the American Income Distribution," American Economic Review, American Economic Association, vol. 60(2), pages 261-269, May.
    2. Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56(4), pages 279-279.
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