Proposal for an Alternative Multicriteria Policy Approach Based on Welfare Functions

In this chapter we offer an alternative view to the positive and prescriptive approach that we have taken throughout the rest of the book. Our main purpose is to show that MCDM is also compatible with a traditional normative approach to economic policy making. This traditional view requires identifying a set of members of society, each endowed with a utility function representing their preferences. Then, following multicriteria logic, we can construct an operational surrogate of the social welfare function that can be seen as an intermediate combination between two opposite poles. On the one hand, there is the Benthamite or utilitarian social welfare function, which aggregates the (weighted) utilities of all members of society. On the other hand, there is the Rawlsian social welfare function, which considers just the well-being of the worst-off member of society. We show how to construct a flexible social utility function that takes both issues (total weighted utility and minimum utility) into account. Finally, we suggest a more operational version by using a balancing factor between both extremes.