Pigou, Arthur Cecil

Pigou, Arthur Cecil

(1877–1959) an English economist who developed the theory of WELFARE ECONOMICS in his book The Economics of Welfare (1919). Pigou preferred to accept market prices as indicators of the relative utilities of different goods, but he argued that divergence between private returns and social returns could necessitate taxes and subsidies to achieve an optimal allocation of resources. This distinction between marginal private net product and marginal social net product provided a case for state intervention to increase the efficiency of resource allocation. Pigou thought that interpersonal comparisons have to be made in formulating policy, and he made out a case for a more equitable DISTRIBUTION OF INCOME on the ground of diminishing marginal utility of income.

See REAL BALANCE EFFECT.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005