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Sustainable Heterogeneity in Exogenous Growth Models: The Socially Optimal Distribution by Government’s Intervention

Authors
Publication Date
Keywords
  • D63 - Equity
  • Justice
  • Inequality
  • And Other Normative Criteria And Measurement
  • D64 - Altruism
  • Philanthropy
  • E20 - General
  • F40 - General
  • I31 - General Welfare
  • I38 - Government Policy
  • Provision And Effects Of Welfare Programs
  • O41 - One
  • Two
  • And Multisector Growth Models
Disciplines
  • Political Science

Abstract

This paper examines the socially optimal allocation by focusing not on the social welfare function but instead on the utility possibility frontier in exogenous growth models with a heterogeneous population. A unique balanced growth path was found on which all of the optimality conditions of all heterogeneous households are equally and indefinitely satisfied (sustainable heterogeneity). With appropriate government interventions, such a path is always achievable and is uniquely socially optimal for almost all generally usable (i.e., preferences are complete, transitive, and continuous) social welfare functions. The only exceptions are some variants in Nietzsche type social welfare functions, but those types of welfare functions will rarely be adopted in democratic societies. This result indicates that it is no longer necessary to specify the shape of the social welfare function to determine the socially optimal growth path in a heterogeneous population.

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