Policy Evaluation, welfare weights and value judgements: a Reminder

This paper is concerned with the use of social welfare functions in evaluating changes. In particular, it considers suggestions that welfare weights to be used in comparing the gains and losses of different individuals (or other appropriate units of analysis), and a social time preference rate for use in cost benefit evaluation, can be estimated either from consumers' behaviour or from the judgements implicit in tax policy. It is suggested that results are highly sensitive to the context and model specification assumed. More importantly, the argument that an estimated elasticity of marginal utility or time preference rate should be used in policy evaluations fails to recognise that fundamental value judgements are involved. Various estimates may be of interest, but they cannot be used by economists to impose value judgements. The main contribution economists can make is to examine the implications of adopting a range of alternative value judgements.