Ken writes, >I'm not an economist but my understanding of traditional >welfare economics is that there would be an increase in >welfare as long as there is a potential pareto improvement.
By definition a pareto improvement helps some and doesn't hurt anyone. Only actual pareto improvements clearly "improve welfare." Potential pareto improvements are not welfare improving. Saying that the gains exceed the loses and, so, that social welfare improves requires, first, interpersonal utility comparisions and, second, that you make more-or-less arbitary assumptions about how to weight individual utilities to aggregate up to a social welfare function. Interpersonal utility comparisions have been rejected by mainstream welfare economics for decades. Arbitary weightings of individuals' utilities functions are, well, arbitary and unsupported by any aspect of mainstream welfare economics. Others on the list are more knowledgeable about mainstream welfare economics and I hope they correct me if I'm wrong. Eric
