Let me expand on this point a little.What is all this focus on money? - why strive for equality only on that parameter and not the more "important" ones??- jacob braestrup
All economists are familiar with the standard declining marginal utility argument for income redistribution. I'm not sure how many realize that it depends on a specific assumption, and that if we make a different, less plausible but not wildly implausible, assumption the argument reverses.
The implicit assumption is that differing incomes reflect differences in productive abilities rather than in the utility function for consumption. We thus think of a population as if it consisted of people all of whom had the same utility function, able to sell their labor at different prices--or with different income endowments. On that model, declining marginal utility of income, which is plausible although not provable, implies that the higher your income, the lower your marginal utility of income.
Suppose we instead assume that everyone has the same ability to convert leisure into income and the same utility function for leisure, and the difference is in how much we value income. Further assume declining marginal utility for leisure. High income people are those who greatly value consumption, hence are willing to sell a lot of their leisure. In equilibrium, their marginal utility of income is higher than that of low income people. That must be the case, because their marginal utility of leisure is higher (they have less of it, having sold more), and in equilibrium marginal utility of leisure equals marginal utility of income times the price of leisure.
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David Friedman
Professor of Law
Santa Clara University
[EMAIL PROTECTED]
http://www.daviddfriedman.com/
