Marginal social utility

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Under the social marginal utility (Engl. Marginal social benefit or marginal social utility ) is defined as the marginal private benefit plus or minus externalities . Both constructs are based on the marginal cost concept and, in principle, also oppose each other as benefits ( social benefit vs. private benefit ).

By this one understands roughly the additional marginal utility or the reduced marginal social costs of all members of society, which arise from the expansion of an economic activity by one measuring unit. From a mathematical point of view, marginal utility can be thought of as a derivation of utility.

For society, the choice of an activity level or a production volume is socially optimal , at which the social marginal costs of the last measurement unit coincide with the social marginal utility ( marginal cost-marginal utility rule ). For a private person, on the other hand, it is optimal to choose an activity level at which their private marginal costs of the last measurement unit coincide with their private marginal utility.

Welfare functions try to measure the overall utility of the population in an economy.

Conditions and characteristics

The properties of the social marginal utility function are based on those of the underlying social utility function. Regardless of its exact type, a social welfare function would have to be generated by aggregating individual utility functions. Kenneth Arrow showed in his impossibility theorem that different opposing preferences of different individuals cannot be aggregated to a benefit for society as a whole.

In principle, the addition of individual benefits requires a cardinal understanding of benefits or an interpersonal comparison of benefits (see also quantification of benefits and interpersonal comparison of benefits ).

Examples

environmental Protection

Particularly in environmental protection measures, social and private benefits differ greatly from one another: The benefits of an environmental protection measure are distributed among all local or global members of society, so that the private benefit only accounts for an infinitely small fraction of the social benefit.

The social marginal cost curve, like the economic supply curve, is rising, since the economic expansion of environmental protection investments makes it necessary to use increasingly expensive suppliers. The marginal social utility curve declines when the most productive avoidance activities are started. The social-optimal level of avoidance activity is reached at the intersection of the two curves.

The private benefit of an environmental protection measure is usually less than the social benefit, so that without intervention by the legislator the socially optimal level of activity is well below the level. The private benefit consists of the image gain and in a few sectors such as B. organic agriculture from improving product quality.

If the state wants to achieve a socially optimal level of activity, it has to burden the causer of external costs or promote or stipulate avoidance activities so that the private and social optimum match.

Research costs

Also in basic research it often happens that the social benefit or marginal benefit is higher than the private one.

Individual evidence

  1. ↑ Martha L. Olney: Schnellkurs Mikroökonomie Taschenbuch . Wiley-VCH Verlag GmbH & Co. KGaA; Edition: 1st edition (April 16, 2014). ISBN 978-3527530007 . P. 156.
  2. ↑ Steffen J. Roth: Economics for Beginners: Microeconomics, Economic Policy, New Political Economy . UTB GmbH, Stuttgart; Edition: 4th, revised. Ed. (June 18, 2014). ISBN 978-3825242381 . P. 163.

literature

  • Wolfram F. Richter, Joachim Weimann: Merit, distribution and marginal social utility of income. Social Science Yearbook (1991): 118–130.
  • Vidar Christiansen: Some important properties of the social marginal utility of income. The Scandinavian Journal of Economics (1983): 359-371.

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