Distribution, Transitivity and Little's Welfare Criteria

Author(s): Amartya Kumar Sen

Source: The Economic Journal, Vol. 73, No. 292 (Dec., 1963), pp. 771-778
Published by: Wiley on behalf of the Royal Economic Society
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771

LITTLE'S WELFARE CRITERIA

1963]

lem 1 of separatinga definition of real income as a total from its distribution;

only now this reappears as the problem of defining (in terms relevant to
welfarejudgments) distributionof real income independently of the composition of the real income to be distributed.
MAURICE DOBB

TrinityCollege,
Cambridge.

DISTRIBUTION, TRANSITIVITY AND LITTLE'S

WELFARE CRITERIA2
FEW criteria in welfare economics have been interpreted in so many
different ways as that of Dr. I. M. D. Little, and now as a result of the last
round of controversieson it we have two distinct versionsof the criterion,viz.,
Dr. Little's own and Dr. Mishan's extension of it.3 We shall refer to them
respectively as the Little criterion and the Little-Mishan criterion. Part of
the object of this paper is to clarify the exact nature of these criteria; but it
also goes into the validity and usefulness of them, both in the light of the
criticismsthat have already been made and in the context of some points to
be raised here. In particular, it is attempted here to establish the following:
(1) The Little criterion, in spite of its formulation in terms of compensation and distribution, amounts to stating no more than that the
principle of transitivity should be used in our welfarejudgments. Accordingly, it can be extended to cover a much wider class of cases without making any stronger assumptions.
(2) The Little-Mishan criterion is dubious. Either it makes
implicit assumptions about people's preference functions that are
nowhere stated, or there exist situations when this criterion will recommend that person A should be made to sacrificeany amount of welfare,
however large, so that person B could gain an infinitesimally small
amount.
THE

LITTLE CRITERION

Though Little's criterion is an outgrowth of the set of compensation

criteria put forward by Kaldor, Hicks and Scitovsky, it is very different in
spirit from those of the compensation school. Its contribution is typically
represented by the following " sufficient criterion for a desirable economic
change: and economic change is desirable if (a) it would result in a good
1 Fully recognised, as we have seen, by Mr. Little in the 1st edition.
2

My thanks are due to Maurice Dobb and Frank Hahn for comments.
C' Welfare Criteria: an Exchange of Notes," ECONOMIC JOURNAL, March 1962. For Little's
own criterion, see I. M. D. Little, A Critiqueof WelfareEconomics(Oxford, 1950), in particular,
pp. 273-5.
3

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772

THE ECONOMIC JOURNAL

[DEC.

redistributionof wealth, and if (b) the potential losers could not profitably
bribe the potential gainers to oppose the change." 1
Since Little's criterionhas led to a great variety of interpretations,2it will
be worth our while to try to formulate the exact nature of his argument. A
preliminarypoint to note is that in Little's system the overall economic welfare is based on the welfare of the individual membersof the society. It thus
differsfrom what Arrow has called the " idealist " tradition,3and is in line
with the usual Paretian welfare economics. Secondly, also in the Paretian
tradition, it assumesthat if somebody is better off and nobody worse off than
in an alternative situation, then this situation is better. Thirdly, nothing is
said about how a welfare judgment should be made when a non-Paretian
made,must be transitive.
choice arises, excepting that the judgments, however
We show below that this completes the list of all characteristicsthat Little
imposes on his welfare function.
Let the economic welfare of the community be given by E, an ordinal
function of the welfares (ordinal) of all individuals constituting the community. The choice is between two situations Q1and Q2, representingtwo
alternative combinations of individual welfare. Let us denote the overall
economic welfare of the two situations as E1 and E2 respectively. Little's
condition (a), quoted above, about " a good redistribution" is defined in the
following way: " if it is said that redistribution would be improved by
moving from Q1 to Q2, that has to be taken to mean that a point on the
utility possibility curve of Q1,which is either south-west or north-east of Q2,
is better than Q1."4 This means that there is a point H (on the utility
possibility curve through Q1) such that: (i) on Paretiangrounds,either
E2 > EH, or E2 < E, and that (ii) on some unspecificgrounds,EH > E1.
(EH stands for the overall economic welfare in situation H.) Condition (b),
stated above, says that there is no H such that E2 < EH. We conclude,
therefore,that E2 > EH, and EH > E1. This, Little regards,is a " sufficient
criterion" for holding that E2 > E1. There is nothing in this argument
except the assumption of transitivity.
If this interpretationis accepted, and I do not see how it can be avoided,
then we can easily, in this light, assessLittle's contribution to the question as
well as examine the validity of the criticisms made of it. First of all, it is
clear that in spite of all the talk aboutjudging how " good " is the " distribu1 Little, A Critiqueof WelfareEconomics,2nd edition (Oxford, 1957), p. 275. In the 1st edition,
p. 268.
2 C. M. Kennedy, " The Economic Welfare Function and Dr. Little's Criterion," Review of
March 1959; E. J.
EconomicStudies,Vol. XX (1952-53); J. E. Meade's review, EcoNoMICJoURNAL,
Mishan's " Survey," ECONOMICJOURNAL, June 1960; and the exchange in ECONOMIC JOURNAL,
March 1962.
3 K. J. Arrow, Social Choiceand IndividualValues(New York, 1951).
4 Little, 2nd edition, p. 103.
The text says " south-east " and " north-west," but these can be
seen from the context to be misprints. In the 1st edition see p. 274. The frame of reference in all
this is a two-dimensional diagram with the welfare of two individuals on the two axes, but the
corresponding conditions for n individuals is easy to formulate.

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1963]

LITTLE'S WELFARE CRITERIA

773

tion " or " redistribution,"it is not based on a dichotomy of the production

considerations on one side and distribution considerations on the other.
This would be scarcelyworth stating had the opposite not been held.' What
Little refers to as " the question about distribution" 2 is not merely a
question about distribution as understood in the context of this dichotomy.
Distribution being better at Q2 than at Q1 is defined to mean only that
EH > E1, and nothing at all is said about the reasonfor thisjudgment, which
may be distributionalfairness,or anything else, depending on the shape of the
utility possibility curve and the nature of the E function, neither of which is
specified.
Secondly, much of the argument of Kennedy in his anti-Little critique3
seems to be irrelevant to Little's criterion.
" Much of the argument of this article [wrote Kennedy] rests on a
self-evident proposition of a mathematical nature....

For any two

situations, if the values of one variable are not ordered, then the values
of the function cannot be ordered unless the other variables are sufficient
the order of them." 4
This would have been an appropriateargument if Little had ordered EH and
El on the basis of purely distributional considerationsindependent of the
aggregative considerations. This, as we have seen, is not what Little did.
Thus, the proposition is not relevant to Little's criterion.
A third considerationis Kennedy's other (and alternative) criticism, viz.,
"the 'plain man' who is able to compare economic welfare between
situations 1 and la [Q1and H] will be able to compare the economic welfare
of situations 1 and 2 [Q1and Q2]directly." 5 This is a very relevant consideration, but is true only if the "plain man " has already made up his mind
about all possible alternatives in a logically consistent way. In such a
situation it could be claimed that it is always" redundant " to inquire into the
logical consequencesof any set ofjudgments of the " plain man," because the
consequences,thus arrived, could have been obtained directly from him. In
practice, however, argumentsinvolving consistency and transitivitydo serve
the important purpose of bringing into relief the impliedvalues in the judgments already made. The significance of Little's criterion is based on this
practical consideration.
Fourthly, we can consider the points raised by Mishan and Robertson
about what kind of a utility possibility curve Little should be assuming.
Mishan argues: 'H, then, has to be recognized as exactlythesamecollectionof
goodsas Q1,only redistributedso as to make the distributioncomparable with
Q2." 6 Robertson is less demanding: "What, if I understandaright, we do
1 See Meade, op. cit.; Mishan, op. cit.; see also Robertson's reference to a " purely distributional
point of view," ECONOMICJOURNAL, March 1962, p. 228.
2 Little, 2nd edition, p. 276.; 1st edition, p. 269.
"The Economic Welfare Function and Dr. Little's Criterion," Reviewof EconomicStudies,Vol.
XX (1952-53), p. 138.
4 Kennedy, p. 138.
5 Kennedy, p. 140.
6 Mishan, March 1962, p. 238.

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774

THE ECONOMIC JOURNAL

[DEC.

notallow for is any shrinkage,or the reserve, in the totalsupplyof such factors
(work, saving, risk-taking)which might be expected to occur as a result of
the modification of incentives caused by the transfer of money income." 1
To this Little replies: " I am not, however, clear why Sir Dennis thinks I
should not have permitted any change in the amounts of work, risk-taking
and saving while moving from Q1to H." 2 This particular controversy is
very easy to resolve. It will be recalled that in showing the steps in Little's
argumentwe did not at any stage have to assume either the constancy of the
total collection of goods or that of the total supply of factors. I should,
therefore, argue that here too Little is on firm ground.
This last point, however, leads us to a final question about Little's
criterion. Need we even assume that Q1and H lie on the same utility possibility curve? Can the purpose that this assumption serves be served by a
less restrictive and a more general assumption? Take a point H such that
it is not necessarilyon the utility possibility curve (Mishan's, Robertson's or
Little's) through Q1,but is on the south-westor north-eastof Q2. Condition
(a) still states that EH > E1, while on Paretian grounds either E2 > EH, or
E2 < EH. Condition (b) has to be redefined, since we cannot now apply
the Scitovsky criterion. Instead we require the condition that H is in fact
south-west of Q2,i.e., on Paretian grounds E2 > EH. It can be shown that
this criterionis less restrictivethan Little's, in the sense that whenever Little's
condition (b) is fulfilled the above condition is also fulfilled, but there are
cases when this condition is fulfilled along with condition (a), but there is no
H such that conditions (a) and (b) are both fulfilled. Furthermore, these
relaxed requirements are quite sufficient for the deduction E2 > E1. All
this is easy to demonstrate. If condition (b) is fulfilled and His on the utility
possibility curve, which is south-west of Q2,then H must be (obviously)
south-westof Q2. But imagine now a case where there is no point H on the
utility possibility curve through Q1such that EH > E1, but there is such an
H outside the utility possibility curve but south-west of Q2,as in Fig. 1.
Here we can come to the same conclusion as Little, though his conditions (a)
and (b) are not simultaneously fulfilled. Or take a case when the utility
possibility curve goes north-east of Q2,but there is still a point H south-west
of Q2such that EH > E1. We can still say E2 > E1. Thus, whenever Little's
test is fulfilled the above test is also satisfied, but the converse does not hold.
Incidentally, it must not be thought that any special difficulty is introduced when we move from Little's Assumption A to Assumption B, i.e.,
assume that all points on the relevant utility possibility curves are attainable.
If in such a situation the Scitovsky criterion is not fulfilled, and the utility
possibility curve through Q1passes north-west of Q2,Q2will not be the best
point to go to, for there will be a point K on the above utility possibilitycurve
such that it is even better than Q2. But this does not contradict the assertion
E2 > E1; all it means is that we can apply transitivityfurther and move to
1

Robertson, p. 227.

Little, March 1962, p. 230.

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775

LITTLE'S WELFARE CRITERIA

1963]

K, since EK > E2 > E1. Nothing is therefore lost by dispensing with the

Scitovsky criterion in completing the welfare mapping, but of course the

utility possibility curves must be examined to see what are the availablealternatives. Since Q2is south-westof K, we do not really need Little's or anyone
else's (excepting Pareto's) criterion to eliminate Q2 from being regarded as
optimum; if Q2is of any use it is only as an intermediate point in a transitive
judgment that might be used to rank Q1and K.
Welfare'
of 8

_ __4Q2

Welfareof A
FIG.

A final observationneeds to be made. LilkeLittle's criterion,the relaxed

requirements discussedhere will be of no use at all when the " plailnman
has already ordered and judged between all possible alternatives. These
are useful only to explore the logical consequencesof the expressedjudgments
when the ordering expressedis incomplete. Little assumes that in practice
~or the " pol'itician"
there willlbe many situations where the " plailn man"
will find it easier to collect his thoughts about two alternativesituationswhen
they lie on the same utility possibilitycurve (such as his Hand Q1)than about
two points that have little in common. Herein lies the poilntof telling the
politician: " the result of the policy change would be very like transferring
JJ from A to B, and then making them both better off."'1 It may be asked
whether the relaxation of the cond'itionsrequired for ordering Q, and Q2
compared wilthwhat Little requiresis at all significant;indeed, 'itwould not
be if people find an intermedi'atepoint H helpful onlywhenit Ilieson a common
utility possibilitycurve with one of the two alternatives. Thus, the extension
proposed, while logilcallyvalid, milghtbe claimed to be vacuous in practice.
think of other
I do not,11i
however, believe that this is the case. It is esto
ay.
kinds of helpful intermediate points, e.g., situations existing in the past. It
is not clear that the statement made to the politician (by Little) quoted above
1 Little, March 1962,p. 233.

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THE ECONOMIC JOURNAL

[DEC.

will always be found more helpful than the statement, say: " the result of the
policy change would be very like what the situation was last year, and then
making both A and B better off." 1 If the politician concerned had earlier
judged that the change from last year to this year was a bad one he could now
be expected to have a definite view about the proposed change. Thus, the
extension of the Little criterion discussed here is not vacuous, and it shows
that the Little criterionforms a subclassof a wider class of exercises,involving
nothing other than the transitivity of welfarejudgments.
When the exact nature of the argument is recognized it might be thought
that it is a little trivial, and it could be asked whether it is appropriateto call
an argument of this kind a " criterion." I do not want to enter into this
question. For my purpose it is sufficient to note that for the reasons mentioned before, the Little-type of argument is useful, and also to recognise
that the conditions that Little requires are unnecessarily restrictive, and
exactly the same argument could be used for a wider class of problems.
THE

LITTLE-MISHAN

CRITERION

Mishan's version of Little's criterion is an attempt to show that " the

rationale of Little's criteria can be made quite explicit and unambiguous." 2
I find the resulting criterion quite explicit and unambiguous, but totally
different in principle from Little's own approach.3 This is not meant only
as a criticism, since Mishan's attempt to bring in explicitly a considerationof
distributional fairness in welfare judgments is itself a very interesting one.
It would be shown, however, that Mishan's way of answering this question is
not a satisfactoryone.
Mishan restricts Little's approach in two distinct ways. First, to facilitate direct comparison between two points, such as Q1and H, on the same
utility possibility curve, he conceives of the curve as the " point utility possibility curve," i.e., referring to different distributions of the samecollectionof
goods,rather than of alternative collections that will be produced if money
transfersare made at a given situation. Secondly, Mishan puts much more
life into Little's phrase " distributionally better," which Little used, as we
have seen, as a shorthand expressionfor a certain result in comparing two
points with the help of a third. Mishan makes it a genuinely distributional
criterion, and states that a social improvement can be assumed to take place
" if theexistingcollectionof goodsis more equally distributed."4
1 In fact, the quoted statement and the argument contained therein are not even subject to
Graaff's reservation about Little's criterion, viz., " The use of an intermediate point ... is not very
helpful since we do not actually experience it, and are therefore less likely to judge its welfare than
the welfare of I or II (which we do experience) " (J. de V. Graaf, TheoreticalWelfareEconomics.
Cambridge, 1957, p. 162).
2 Mishan, March 1962, p. 238.
3 Mishan seems to agree, at one stage, that his interpretation of Little's criterion is not quite the
same as Little's own, but adds, " I hope Little would agree that my interpretation fits in well with
4 Ibid., p. 238.
what he is after in his criteria " (p. 238 n).

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1963]

LITTLE'S WELFARE CRITERIA

777

We must begin by noting that the observationwe made about the Little
criterion is not valid for the Little-Mishan criterion. H and Q1could be
compared onlyif they lie on the same utility possibility curve, as it has been
defined rigidly. (The only other basisfor comparisonallowed is the Paretian
one.)
We must now ask what exactly are we assumingwhen we regard it to be
always a social improvementif the existing collection of goods is more equally
distributed. Is this a reasonable way of proceeding? Let (Wa, Wb) and
(W.*, Wb*) represent two alternative combinations of the welfare of two
individuals A and B. Let us decide, on the basis of our interpersonalcomparisons, that (Wa*, Wb*) is the more equal distributionof the two. From
this Mishan goes straight on to recommend choosing (Wa*, Wb*) without
asking anything further about the relative sizes of Wa and Wa*, and of Wb
and Wb*. The only restriction we have on them arises from the Paretian
requirement, that if a change makes at least somebody better off, and nobody
worse off, it is a good change. To prevent that from happening, and deciding the issue without bringing in distribution, we must have (Wa - Wa*)
have
(Wa

Let us assume that

the opposite sign as (WbWb*).
Wa*) > 0; so (WbWb*) < 0. Now, beyond this there is no

limitation. It follows that Mishan will prefer (Wa*, Wb*), even if

(Wa

Wa*) is as large as we might care to specify and (Wb*

Wb) in-

finitesimally small. That is, there may be situations where Mishan will
recommend that A makes as large a sacrificeas we postulate so that B benefits
an infinitesimal amount.
To take a simple example, let A love cheese and B love beer, and let there
be only these two commodities in our world. A is assumed to have a very,
very tiny (but positive) liking for beer, and B has a similar one for cheese.
To start with we have a situation Q1,where A has all the cheese and B has all
the beer. But the world is, let us assume,rich in cheese, but has little beer, so
that the present income distribution, in Mishan's opinion, is very unequal.
The distribution of the two commodities that Mishan regards as more equal
gives us a situation Q2,where B still has all the beer, but also has some cheese,
and A has less cheese than before. But the drop in A's welfare, by our hypothesis, is very large, and the rise in B's welfare is minute. But Q1 and Q2
welfarecombinationslie still on the same " point utility possibility curve," and
since the distributionis more equal at Q2,Mishan is committed to preferthat.
The entire dilemma arisesfrom Mishan's assumption: " If there is no change
in the amounts of the goods whatsoever, then of course, on distribution
grounds alone, the change towards a more equal distribution of welfare
should be approved." 1 There is no " of course " about it. Unless we
specify the individuals' preference functions more precisely, we have no
guarantee that Mishan would not find himself recommending some rather
absurd changes.
1 ECONOMIC
JOURNAL, March

1962, p. 236.

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THE ECONOMIC JOURNAL

778

[DEC.

To conclude, the Little criterion is very general, involving nothing other

than transitivity; in fact it is so general that it looks almost trivial. The
Little criterioncan be easily extended, without making any strongerassumptions than Little himself does, which will cover all his cases and some more.
The Little-Mishan criterion, on the other hand, is most special, and its
acceptance can give us most peculiar results. I am not particularly worried
that Mishan's approach involves interpersonalcomparisonsin deciding what
is a more equal distribution; but if we are allowed to make interpersonal
comparisonswe can surely use them more sensibly than to recommend that A
sacrificesan amount, however large, for an infinitesimally small gain of B.
The failureof the Little-Mishan criterionis particularlyunfortunate,because
its emphasis on the fairness of income distribution was otherwise a most
welcome change in the lopsided over-Paretian world of present-day welfare
economics.
AMARTYA KUMAR SEN

TrinityCollege,
Cambridge.

TWO COMMENTS
I
IT is very easy for me to comment on Mr. Sen's article. He understands
and correctly states my position;1 correctly points out that a number of
criticismsof my argument have resulted from misunderstandingit, and were
consequently beside the point; and correctly points out that Mr. Mishan's
criterion is quite differentfrom mine. (I only wish he would, therefore,not
refer to the " Little-Mishan Criterion.") His extension of my argument is
valid, and conceivably useful. I agree with his criticismsof Mishan.
Mr. Sen's firm statement " it is clear that in spite of all the talk about
judging how ' good ' is the 'distribution' or 'redistribution,' it is not based
on a dichotomy of the productionconsiderationson one side and distribution
considerationson the other " is a complete answer also to Mr. Dobb's current
comment.
Mr. Dobb startsby recognisingthat I had no use for the above dichotomy,
and then goes on to say: " But presumably the fulfilment of this condition
[Scitovskycriterion,in my sense] was taken as evidence that there is more of
something(even if it be grudged a name), as distinct from any possible effect
of a distributionchange." He then calls his " something " a " goods-effect,"
so as " to avoid the suspect term ' real income,' " and writes pages of criticism as if I had said or implied that the fulfilmentof the Scitovskyor KaldorHicks criterion was evidence of a positive " goods effect." In fact, not only
1 His exposition is actually the same as one given by Professor Samuelson in " Evaluation of
Real National Income," OxfordEconomicPapers,January 1950, p. 29, note 2.

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