Social welfare function:

Welfare economics, dealing with  the norms of efficient resource allocation. We extend the discussion presently to see the appropriateness of value judgement in analysing  the  welfare issues  and  search  for  the  areas  of development and refinement. In  the process, we will discuss  the ethical social basis of welfare function and of compensation principle. We will discuss  how through compensation principle optimum welfare  is  achieved. We  shall also be  able  to  decipher whether  the  compensation  principle  is  an  improvement over  the earlier attempts or not.  

Value judgments are crucial in welfare analysis and hence the analysis cannot be  purged  of  them.  However,  despite the explicit introduction of value judgments, the economist's approach can  still be  scientific in  the sense that one scientifically deduces the welfare propositions from the embedded value judgments  in  the  welfare analysis. In fact value judgements  play  a  role  in
formulating social welfare function, which is a measure of social welfare of society. There are different types of social welfare  functions. The classical or Benthamite SWF and  the Rawlsian ethical SWF emphasises on  the cardinal approach, while  the Bergson-Samuelson SWG is based on  ordinal approach and hence scientific. However, the construction of SWF is a matter of political economy.

We  also  analysed the compensation principle  as  an improvement over  the Paretian optimality, as it evaluates the changes in social welfare as a result of any economic reorganisation, which  harms  somebody and  benefits  others, neglected by the indeterminate Paretian optimality analysis. We also discussed the two different ways of Kaldor and Hicks exposition of Pareto optimality from  the gainers and  loser's point of view  respectively. We  explained how Hicks criterion revert the Kaldor's criterion. Then we examined the Scitovsky reversal criteria  and  the  Gorman's  problem of intransitivity  and  how Samuelson's  criterion offers a solution. We  summed-up by  pointing out that  disregarding the  problems  inherent  in  the above criteria,  whether these objective criteria make any sense or  not  and  came  to  the conclusion that ethically, Kaldor criteria can be easily disputed as it is only a 'could and not a 'would'  and a 'should'.