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Prices payable by a user at the time of use. Utilitarianism

This is the ethical doctrine, a variant of which underlies nearly all welfare (and extra-welfare) economics, which specifies utility as the principal good characteristic of society: what humankind as a whole ought to maximize. The moral object for a society to pursue under utilitarianism is 'the greatest utility for the greatest number'. Under utilitarianism, that which is right is any action or arrangement whose consequences are good in the sense of increasing total utility measured as the sum of each person's individual utility. Hence utilitarianism is a consequentialist moral theory. 'Rule utilitarianism' maintains that a code or rule of behaviour is morally right if the consequences of adopting it are more favourable for total utility than not adopting it. 'Act utilitarianism' maintains that the morality of an action is determined by the balance of the favourable or unfavourable consequences in terms of utility that flow from it.

The view that policy ought to be based on individuals' preferences under a veil of ignorance has a long history. Amongst its attractions are the idea that 'everyone counts' in the sense that everyone's utility is treated equally or, in a variant (maximin) form, that the social goal ought to be to maximize the utility of the least well off individual.

The classical economists treated utility as a cardinal entity accruing to individuals which could be added up (like their weights). Since the 1930s, welfare economics has tended to shy away from the interpersonal comparison of utilities (on the somewhat odd ground that it is 'meaningless' to compare them, when everyone ordinarily compares such things on a daily basis) in favour of the Pareto criterion under which a change is judged to be a social improvement only when at least one gains and no one loses utility from it (this does not imply that other changes are not social improvements; only that one cannot say whether they are). Pareto himself, however, used cardinal and interpersonal comparisons of utility whenever he felt it necessary to do so.

Utility theory has also tended to treat utility as measured by linear instruments (like temperature), which enable one to distinguish rising or falling increments of it (marginal utility). Considerable controversy attaches both to the question of the people whose utility is to be 'counted', the ways in which the utilities accruing to different people are to be 'added up', and the character of the entities that are deemed to yield utility or disutility. Goods and services are always 'in', but the following, to illustrate a few possibilities, are not always allowed: prospects of consuming goods and services, the relative consumption of goods and services by others, the distribution of goods and services generally, characteristics of goods and services, others' consumption, others' utility, the means of acquisition of goods and services, the processes of change as ownership bundles change, characteristics of people such as their health and cognitive skill, and capabilities of people like their talent for survival. See Entitlement Theory, Fairness, Interpersonal Comparisons of Utility, Social Welfare Function, Utility.

Utility

Utilities are numbers assigned to entities (usually benefits or things presumed to be the objects of people's preferences) according to a rule. This enables the entities to be quantified and ranked according to preference, desirability or choice (these are not, of course, synonyms). There are four common scales of measurement: categorical, in which entities either belong to a category ('able to wash self') or not ('not able to wash self'); ordinal, in which rank order is revealed and any numbers will serve that preserve the correct order (for example, the entity 'dead' is worse than the entity 'getting along'); interval, in which, like temperature measurement, the ratios of intervals between the points on the scale are the same for each set of possible numbers and the zero point is arbitrary; and ratio, in which, like measures of weight or distance, zero means 'none' and 'twice as much' is indeed twice as much, whichever set of numbers is being used. The sort of measurement normally used in indifference curve analysis is ordinal. The final two are both forms of cardinal measurement.

The table illustrates three kinds of utility measurement for the four entities which here correspond to health states, or diseases, where high numbers denote better states. The first set of three columns shows some possible numbers (out of an indefinitely large set) that rank the four entities ordinally. Each column is equally valid and each ranks them in the same order. The differences between the numbers assigned in each column mean nothing, so it is not possible, for example, to speak of increasing or diminishing marginal utility from health. The second set of three columns shows three sets of numbers that have been attributed to the entities according to a different rule. The same order is preserved but this time column 6 = 10 + 2(column 5) and column 7 is -10 + column 5. Each is a linear transformation of the other, having the general form A = a + bB. With this second set of numbers one can speak of increasing or diminishing marginal utility of health as each column will show the changes between cells as increasing or decreasing. The final three columns are related as follows: column 9 is column 8 multiplied by 0.035 and column 10 is column 8 multiplied by 35. Here the form of the equation relating them is A = bB, where b = A/B, a constant. Not only does this measure rank the entities in the same order, and preserve increasing or decreasing marginal utilities, but we can also say that if 'good health' is 1.67 times as good as 'better health' on one scale, so will it be on any other.

Examples of utility scalings

Cardinal

Entity

Ordinal

Interval

Ratio

1

2

3

4

5

6

7

8

9

10

Poor health

1

23

66

1

12

-9

1

0.035

35

Better health

2

24

67

6

22

-4

6

0.210

210

Good health

3

77

68

10

30

0

10

0.350

350

Excellent health

4

987

69

13

36

3

13

0.455

455

The welfare connotations of 'utility' are important in economics although, when used simply as an index or preference, utility theory can be seen as a part of the economist's approach to behaviour: it is predictive, explanatory and conventionally positive. The usual axioms underlying utility theory are, where the As, Bs and Cs are 'bundles' of goods or services:

Utility Frontier

• completeness: either A is preferred to B, or B to A or an individual is indifferent between them;

• transitivity: if A is preferred or indifferent to B and B is preferred or indifferent to C, then A is preferred or indifferent to C;

• continuity: there is an indifference curve such that all points to its north east are preferred to all points to its south west;

• convexity: the marginal rate of substitution is negative;

• non-satiation: more is always preferred.

These are essentially positive and experimentally refutable (and have all been more or less frequently refuted empirically).

The welfare connotations arise in welfare economics, when the preferences of individuals form the basic building blocks used to identify improvements or deteriorations in social welfare via a social welfare function. Here 'more utility' is a 'good thing'. 'More utility' would also be a good thing if the basic building block consisted of entities ranked by something other than 'preference' but no less value-laden, for example entities that one was duty-bound to select, or ones which, on some ethical grounding or other, ought to be ranked higher than the rest. The fact that one may feel that what one wants to choose is not what one ought to choose is rarely reflected in discussions of utility, even though there is no reason why the workhorse of utility numbers could not do duty in ranking either. The point is that 'utility' is not inextricably wedded to 'preference'.

In a rather different way that is special to health economics, there are welfare connotations arising from the use of utility theory as the analytical framework for constructing indices of health, as in the use of, say, expected utility theory in the standard gamble approach to quality-adjusted life-year (QALY) construction. Here two common, but different, value assumptions may be met. One is that the values embodied in entities (like QALYs) intended to inform public decision making ought to reflect the preferences of the community on whose behalf the decisions are being made; the other is that the values ought to reflect the preferences (or rankings on other grounds) of decision makers who are accountable to the public via the usual processes of representative democracy. In either approach, difficulties arise when any of the underlying axioms (assumptions) of utility theory are violated. See Extra-welfarism, Interpersonal Comparisons of Utility, Utility Frontier, Utility Maximizing.

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100 Health Tips

100 Health Tips

Breakfast is the most vital meal. It should not be missed in order to refuel your body from functional metabolic changes during long hours of sleep. It is best to include carbohydrates, fats and proteins for an ideal nutrition such as combinations of fresh fruits, bread toast and breakfast cereals with milk. Learn even more tips like these within this health tips guide.

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