Discuss the basic difference in approach adopted by pigou and pareto to deal with problems of welfare economics
Answers
Pigou's approach
Pigou treated matter by definition in his economic approach to economic welfare. According to him welfare resides in a man's state of mind or consciousness that is made up of his utilities or satisfactions. So the basis of welfare is the extent to which an individual's desires are fulfilled.
Pareto's approach
He subjected the redistribution of economic goods to analytical treatment in his sociological approach to social welfare maximization. Pareto's principle is also known as the 80 / 20 rule. According to it 80% of the output from a given situation or system is determined by 20% of the input.
“Welfare economics is a branch of economics that uses microeconomic techniques to evaluate well-being at the aggregate level.”
Pigou is known as “Father of Modern Welfare Economics”. Pigou invented Modern Public Finance policy because he always asked this question, “How government policy could increase national well-being?” Moreover, he believed that any economic development can be achieved only by government’s interventions.
Pareto uses Optimality. That is, it is probabilistically true however it does very less good to the society. He uses both ordinal and cardinal measures for welfare analysis. In Pareto’s, the scope of public finance is very less. According to Pareto, the intervention of government will do more harm than good to the society.