Matthew D. Adler
This chapter describes and compares the two most important policy-analysis methodologies in economics: cost-benefit analysis (CBA) and the social-welfare-function (SWF) framework. Both approaches are consequentialist and welfarist; both are typically combined with a preference-based view of well-being. Despite these similarities, the two methodologies differ in significant ways. CBA translates well-being impacts into monetary equivalents, and ranks outcomes according to the sum total of monetary equivalents. By contrast, the SWF framework relies upon an interpersonally comparable measure of well-being. Each possible outcome is mapped onto a list (vector) of these well-being numbers, one for each person in the population; the ranking of outcomes, then, is driven by some rule (the SWF) for ranking these well-being vectors. The utilitarian SWF and the prioritarian family of SWFs (each corresponding to well-developed positions in moral philosophy) are especially plausible. The case for using CBA rather than one of these SWFs is weak—or so the chapter argues.
James R. Otteson
Markets are often criticized for being amoral, if not immoral. The core of the “political economy” that arose in the eighteenth century, however, envisioned the exchanges that take place in commercial society as neither amoral nor immoral but indeed deeply humane. The claim of the early political economists was that transactions in markets fulfilled two separate but related moral mandates: they lead to increasing prosperity, which addressed their primary “economic” concern of raising the estates of the poor; and they model proper relations among people, which addressed their primary “moral” concern of granting a respect to all, including the least among us. They attempted to capture a vision of human dignity within political-economic institutions that enabled people to improve their stations. Their arguments thus did not bracket out judgments of value: they integrated judgments of value into their foundations and built their political economy on that basis.