Distributional Weights in Economic Analysis

Abstract

The use of distributional weights in economic analysis is receiving increasing attention in both research and policy circles. This paper examines the extent to which distributional weights affect economic analysis of public good provision. We make two contributions. First, we present a model with distributional weights that allows for marginal benefits and costs of the public good to differ across regions and individual characteristics, such as income or race. Samuelson’s analysis of pure public goods is a special case, as are other cases in which marginal benefits and costs may differ by region when the distributional weights are unity. We show how the provision of a pure public good varies with distributional weights different from unity. Second, we analyze distributional weights in conjunction with the value of a statistical life (VSL). We compare the use of an average VSL with differentiated VSLs. We show when using an average VSL will increase or decrease optimal public goods provision relative to differentiated VSLs for given distributional weights. We also identify conditions under which a low-income group prefers using an average VSL to true VSLs. This depends on the fraction of the costs that the low-income group bears in the provision of the public good.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.