Pareto, Pigou and third-party consumption: divergent approaches to welfare theory with implications for the study of public finance

This study utilises the distinction between ophelimity and utility to contrast Pareto's and Pigou's divergent approaches to economic and social welfare when individuals are conscious of consumption by third-parties. It is argued that diverse characterisations of science lie at the heart of the substantive differences in these approaches to welfare, with divergences in the treatment of third-party consumption being more significant than any variations in the ordinal or cardinal representation of welfare issues. Moreover, differences associated with the treatment of third-party consumption have implications for the choice between an economic and a sociological base for the study of public finance.