Aggregation of Utility and Equivalence Scales: A Solution to the Pangloss Critique

Definitions of equivalence scales are usually based on a household utility function. This may be founded on an assumption of the household maximizing a welfare function of individual utilities. Basing inter-household comparisons of welfare on this approach is fallacious because households put different weight on the utility of the various household members, a weighting that does not necessarily correspond to an ethically sound aggregation of utility. This is called the Pangloss critique. To solve the problem, I suggest keeping the model of household behavior, but to introduce a new function to aggregate the household members' utilities. Equivalence scales based on this approach are shown to have desirable properties. Copyright 2003 Blackwell Publishing Ltd..