2.5.5. Equity and Distribution
Assessments of the impacts of alternative climate change scenarios require
assessments of their impacts on different groups, societies, nations, and even
species. Indeed, this report reveals that many sectors and/or regions are at
greater risk to climate change than others. This section addresses this need.
2.5.5.1. Interpersonal Comparisons
First principles of economic theory offer two approaches for comparing situations
in which different people are affected differently. In the first—the utilitarian
approach attributed to Bentham (1822) and expanded by Mills (1861)—a situation
in which the sum of all individual utilities is larger is preferred. Because
Bentham's view of utility reflected "pleasure" and "pain,"
this approach embraces the "greatest happiness principle." Many objections
have been raised against it, however, primarily because the whole notion of
interpersonal comparisons of utility is problematic. Indeed, Arrow (1951 and
1963) objected strenuously in arguing that "interpersonal comparisons in
the measurement of utilities has no meaning and, in fact, there is no
meaning relevant to welfare comparisons in the measurability of individual utility."
For example, it is impossible to compare the pleasure that a person receives
from listening to a concert with what another gets from watching a dance. Second,
maximizing the sum total of utility, if it were possible, would require that
the marginal utilities of all individuals be equal. But this would say nothing
about the level of utility for each individual. They could be quite different,
so the utilitarian rule is insensitive to distributional issues except in the
special case in which all individuals have identical utility functions.
These difficulties led to the development of a second approach—the welfarist
approach, in which a social welfare function of individual utilities is postulated.
Utilitarianism is thus a special case in which the social welfare function is
simply the sum of individual utilities. There are other options, of course.
The Gandhian principle, for example, can support a function that judges every
possible action on the basis of its impact on the poorest of the poor.
It also is possible to compare two situations without defining an explicit
social welfare function and without making interpersonal comparisons of individual
utilities. The Pareto principle offers one method, by which one judges any situation
better than another if at least one person is better off and no one else is
worse off. A partial social ordering with which unambiguous comparisons can
be made in some (but not all) cases can be constructed from the Pareto principle
if cardinal utilities can be added across individuals, if society accepts the
principle of anonymity (i.e., only the distribution matters, not which particular
person is in a particular place), and if there is an aversion to regressive
transfers (i.e., transfers from the poor to the rich). To see how, consider
two situations, X and Y. Assume that there are _{n} individuals ordered
from poorest to richest. Let them have incomes (or utilities) {X_{1},
..., X_{n}} and {Y_{1}, ..., Y_{n}} in X and Y, respectively.
X can be deemed preferable to Y if X_{1}
Y_{1}, [X_{1} + X_{2}]
[Y_{1} + Y_{2}], and so on through [X_{1} +...+ X_{n}]
[Y_{1} +...+ Y_{n}],
with at least one strict inequality holding. Note that showing that X is not
preferred to Y is not sufficient to show that Y is preferred to X
Rothschild and Stiglitz (1973) took these notions further by showing three
alternative but equivalent ways of comparing distributions X and Y. They concluded
that X would be preferred to Y if all of the following obtain:
 The Lorenz curve for X were inside the Lorenz curve for Y.
 All those who valued equality preferred X to Y.
 Y could be obtained from X by transfers from the poor to the rich.
Note, in passing, that Lorenz curves simply plot the percentage of income received
by various percentiles of populations when they are ordered from least to greatest.
Rothschild and Stiglitz (1973) also point out, however, that these measures
apply only to a onegood economy. This requirement is equivalent to assuming
that income is desired by all individuals and there are no externalities; the
implications of more than one good are "substantial."
None of these measures speaks to estimating the cost of inequity when comparisons
can be made. But just as insurance can be used as a utilitybased measure of
the cost of uncertainty, similarly constructed estimates that are based on social
welfare functions that display aversion to inequality can be constructed. Insurance
premiums computed in these cases simply represent a measure of what society
would willingly pay to eliminate inequality. Such an approach assumes the possibility
of defining an international social welfare function. Let us now look at the
difficulties involved in defining it.
