1. Redistributing Income in Theory
Utilitarian model of redistribution.
Assume that each individual’s utility u is a function of money income m: u=u(m).
Maximize total utility of all persons in society.
W = ui(mi).
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2. Utilitarian Model of Redistribution
Optimization leads to the requirement that marginal utilities for all persons must be equal.
In the two person case:
Mua = MUb
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3. Figure 5.2: An Equal Distribution of Income
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4. Figure 5.3: An Unequal Distribution of Income
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5. Figure 5.4: Optimal Income Distribution When People Are Different
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6. Figure 5.5: Social Welfare Function Contours When Individuals’ Utilities Are Perfect Substitutes
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7. Figure 5.6: Social Welfare Function Contours
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8. Figure 5.7: Social Welfare Contours in the Rawlsian Case
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9. Figure 5.8: Social Welfare Maximization
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