I agree that this is an important topic. Economic welfare analysis is a widely used method for cause prioritization, and a lot of it looks very different from the kind of cause prioritization work that 80k or Open Philanthropy would do. So it’s useful to look into why that is.
That said, a lot of the economics literature goes beyond the simple “maximize surplus” approach that you highlight. The main subfield to look at is public economics (or a narrower subfield called public finance). That’s where you find professors who understand welfare economics the most. Since at least the 1970s, mainstream public economists have studied optimal policy using social welfare functions which capture the idea of diminishing marginal utility from wealth (James Mirlees’ Nobel prize-winning work on optimal redistribution is a good example. Atkinson and Stiglitz’s textbook, first published in 1980, is a great resource for learning this kind of stuff. And here are a fewexamples of papers published in the last few years). Roughly, those papers adjust WTP by a factor to account for differing marginal utilities, as you suggest in your google doc.
Many economists who most directly influence public policy are public economics or public finance professors (as an example, all 5 professors from the University of Chicago who served on the Council of Economic Advisors in the past 12 years were from public economics), so narrow “maximize willingness to pay” thinking shouldn’t be a problem for them.
However, many economists outside of public economics often do engage in the simple “maximize WTP” thinking that you’re talking about. Unfortunately, more sophisticated welfare analysis often isn’t a standard part of graduate school curricula (let alone undergrad courses), so a lot of economists don’t know about it. These economists could be having negative impacts in a number of ways:
They directly influence policy. The main channel for this, I would expect, is macroeconomics policy. It may also impact development policy, but from what I’ve heard development economists rarely do any sort of formal welfare analysis (they don’t even consider consumer surplus), and instead just look at ad-hoc objectives like increasing health or output.
They teach welfare analysis poorly to students. This leads to more economists who don’t know any welfare analysis beyond willingness to pay.
I’m not sure how big this negative impact is, but if it turned out to be big, I think the solution would be on the education side. Basic concepts in welfare economics, including optimal redistribution, should be a part of standard graduate and undergraduate economics curricula. Interested students should be informed that if they want to learn more they should take a public finance elective. From what I hear, this is fairly common at European universities, but not at American ones.
I vaguely recall hearing an economist say that welfare economics ceased to be part of the undergraduate curricula in American universities at some point in the past. I wonder if it might be worth tracing down the history of this development and examine it as a potentially instructive case study. Quick googling uncovers an interview with Amartya Sen in which the Indian economist recommends Tony Atkinson’s The strange disappearance of welfare economics as the “best article on that sad neglect”.
Thanks! Both the Atkinson article and the Sen interview are very interesting. I would like to see some actual data on the teaching of welfare economics/public economics. People seem to agree that it’s declined, but I’m not sure I would agree that it has “disappeared” (anecdotally, I know many people who were exposed to models of optimal redistribution during undergrad. Some of these people were exposed through a required course, and others chose to take a public finance elective). My impression that welfare economics teaching is more common at European universities is also just based on anecdotal evidence. Some actual data would be helpful.
I agree that this is an important topic. Economic welfare analysis is a widely used method for cause prioritization, and a lot of it looks very different from the kind of cause prioritization work that 80k or Open Philanthropy would do. So it’s useful to look into why that is.
That said, a lot of the economics literature goes beyond the simple “maximize surplus” approach that you highlight. The main subfield to look at is public economics (or a narrower subfield called public finance). That’s where you find professors who understand welfare economics the most. Since at least the 1970s, mainstream public economists have studied optimal policy using social welfare functions which capture the idea of diminishing marginal utility from wealth (James Mirlees’ Nobel prize-winning work on optimal redistribution is a good example. Atkinson and Stiglitz’s textbook, first published in 1980, is a great resource for learning this kind of stuff. And here are a few examples of papers published in the last few years). Roughly, those papers adjust WTP by a factor to account for differing marginal utilities, as you suggest in your google doc.
Many economists who most directly influence public policy are public economics or public finance professors (as an example, all 5 professors from the University of Chicago who served on the Council of Economic Advisors in the past 12 years were from public economics), so narrow “maximize willingness to pay” thinking shouldn’t be a problem for them.
However, many economists outside of public economics often do engage in the simple “maximize WTP” thinking that you’re talking about. Unfortunately, more sophisticated welfare analysis often isn’t a standard part of graduate school curricula (let alone undergrad courses), so a lot of economists don’t know about it. These economists could be having negative impacts in a number of ways:
They directly influence policy. The main channel for this, I would expect, is macroeconomics policy. It may also impact development policy, but from what I’ve heard development economists rarely do any sort of formal welfare analysis (they don’t even consider consumer surplus), and instead just look at ad-hoc objectives like increasing health or output.
They teach welfare analysis poorly to students. This leads to more economists who don’t know any welfare analysis beyond willingness to pay.
I’m not sure how big this negative impact is, but if it turned out to be big, I think the solution would be on the education side. Basic concepts in welfare economics, including optimal redistribution, should be a part of standard graduate and undergraduate economics curricula. Interested students should be informed that if they want to learn more they should take a public finance elective. From what I hear, this is fairly common at European universities, but not at American ones.
Thank you for this informative answer!
I vaguely recall hearing an economist say that welfare economics ceased to be part of the undergraduate curricula in American universities at some point in the past. I wonder if it might be worth tracing down the history of this development and examine it as a potentially instructive case study. Quick googling uncovers an interview with Amartya Sen in which the Indian economist recommends Tony Atkinson’s The strange disappearance of welfare economics as the “best article on that sad neglect”.
Thanks! Both the Atkinson article and the Sen interview are very interesting. I would like to see some actual data on the teaching of welfare economics/public economics. People seem to agree that it’s declined, but I’m not sure I would agree that it has “disappeared” (anecdotally, I know many people who were exposed to models of optimal redistribution during undergrad. Some of these people were exposed through a required course, and others chose to take a public finance elective). My impression that welfare economics teaching is more common at European universities is also just based on anecdotal evidence. Some actual data would be helpful.