Consumption externality and Pigovian taxation : A comparison between Rawls and Bentham

This chapter provides two well-known welfare criteria – the Rawlsian maximin and the Benthamian utilitarianism – to a simple model with consumption externality. It reminds the normative implications of Rawlsian maximin and Benthamian utilitarianism. The chapter proposes a simple model with consumption externality and a numerical example. It shows that the normative difference occurs for the special case of Pigovian taxes with consumption externality. The competitive equilibrium of this economy is not efficient, because of the negative externality engendered by the individual quest for status. The chapter also provides the Rawlsian maximin conception of justice and the Benthamian utilitarianism to a model with consumption externality. Indeed, as utilitarianism, Rawls's theory can be defined by two levels: the individual one which proposes a non-welfarist evaluation of individual well-being (evaluation in terms of primary goods) and the collective one which aims to consider individuals as ends and not as means.