Measurement of Social Welfare:

To illustrate, let us  introduce some value judgments that are assumed  in most welfare studies, and as put forward by Jeremy Rothenberg, in  his book,  'The Measurement of  Social Welfare ', (1961):

1)  Non-labor resources employed in different uses. "A  shift in a unit of any factor of production, other than labor, from one production unit to another would  leave economic welfare  unchanged, provided  the amounts of all other elements  in  welfare were  constant".  In  other  words, "factory smoke,"  etc., are assumed  to have no effect on social welfare.

2)  Consumer sovereignty. "Individual's preferences are  to  'count'  ". Any change, which  leaves everyone indifferent, has the same level of social welfare; a change by which one person is better off while everyone else is indifferent represents an increase in social welfare; a change by which one  person is worse off while everyone else is indifferent represents a decrease in  social welfare.  In  other words, this assumption decentralises  the evaluation of alternatives so that  each  individual first orders various alternatives so  that these  orderings become  the determining variables of social welfare.

3)  Equal  distribution of "shares".  "If  the shares of any  ith  and  kth individuals were equal, and if  the prices and wage  rates were  fixed, the transfer of a small amount of the  share of  i  to  k  would leave welfare unchanged". To put  it  differently, for  given  prices and wage  rates, any departure from equal shares will bring about a social welfare decrease; any closer approximation  to it will bring about a social welfare increase.