Social Welfare Functions

Abstract The social welfare function (SWF) framework is a core methodology of welfare economics. This chapter describes the approach, discusses its application to health priority-setting, and illustrates this application with a concrete example. The SWF framework conceptualizes any given policy as a probability distribution over outcomes, with each outcome in turn a pattern of well-being among the population of concern. The well-being measure can be derived from utility functions representing individual preferences with respect to the attributes that determine well-being (e.g., health, longevity, income). Different rules for ranking well-being patterns are possible, including both “utilitarian” and “prioritarian” rules. Unlike cost-effectiveness analysis, the SWF framework is sensitive to the way in which a given individual’s income, health, and longevity interact to determine her lifetime well-being. Unlike cost-benefit analysis, the utilitarian and prioritarian SWFs take account of the declining marginal utility of income. Health scholars’ traditional concerns about considering income in allocating health care are mitigated by this feature of both SWFs and, even more so, by the extra concern for the well-being of the worse off that is characteristic of prioritarianism.