Income Distribution and Differences in Needs

The treatment of needs in assessing economic equity is a subject that arouses strong feelings. Very different approaches have been adopted in the study of this subject. There are those who regard differences in needs as sufficient grounds for rejecting any analysis of income inequality. For them to try to compare one distribution of income, Y1,…, Y h with another, Y1*,…, Y h *, is without meaning, since the people concerned may have quite different needs. ‘Welfare’ depends not just on income but also on other dimensions. Precisely what other dimensions we should take into account is open to debate, but most people would agree on certain factors such as health, handicap, age or family size. Arrow gives the example of ‘the haemophiliac who needs about $4,000 worth per annum of coagulant therapy to arrive at a state of security from bleeding at all comparable to that of the normal person’, an example he contrasts with the ‘facetious’ one of a person who is ‘desperate without pre-phylloxera clarets and plovers’ eggs’ (1973, p. 254).