Value Preserving Welfare Weights for Social Optimization

We propose a method to endogenize social welfare weights. We provide three axioms which uniquely determine the contribution of a bundle of goods to a welfare function. We define weights to be value preserving (VP) if the contribution of an individual to social welfare is proportional to the contribution of the final allocation to the individual's welfare. We show that VP weights coincide with Negishi weights in Arrow-Debreu economies. With wealth heterogeneity, VP weights prescribe higher than capital labor taxes even for extreme inequality levels. With ability differences, VP weights redistribute towards high ability, high effort and low wealth types.