Chapter 24 Selfishness, altruism and normative principles in the economic analysis of social transfers

This chapter examines the role of altruistic motives in the economic analysis of public social transfers, both from a positive and from a normative point of view. The positive question is to know whether we can fully neglect altruistic considerations to explain the development or sustainability of these transfers. Such is the implicit ambition of efficiency theories of the Welfare State. However, while these theories may be suited for explaining the development of public insurance or life-cycle transfers, they rapidly reach their limits when we try to explain more redistributive dimensions of social transfers. At the other extreme, descriptions of social transfers as systems of extended insurance (behind the veil of ignorance) implicitly do as if individuals were ready to completely abstract from their real world situations, and this can be analyzed as an extreme form of altruism. Actual motivations for support of social transfers certainly lay somewhere in between, i.e., a mix of well-understood selfishness and partial altruism. This explains why these systems can redistribute more than explained by pure efficiency motives, but less than what would be predicted under the extended insurance hypothesis. One additional limit to redistribution is the fact that even very altruistic agents can deliberately reduce its scope because of its potential disincentive effects. The second part of the chapter examines normative considerations which seem relevant to the evaluation of systems of social transfers. In particular, the idea of extended insurance has paradoxical implications in some circumstances, because of its structural similarity to utilitarianism. Therefore it appears useful to look for other normative theories, such as inequality-averse social welfare functions or fairness criteria. It is shown how both approaches can be useful in the study of second-best solutions under incentive constraints. The chapter ends with a critical examination of the incorporation of individuals' altruistic feelings in social welfare functions.