Endogenous Social Minimum

This paper characterizes a class of individual preferences in which heterogeneous social members care not only about their own consumption, but also about the minimum consumption in society. The key axiom triggering such concern is an indifference preference on the consumption distribution of others whenever a social member is “miserable”, defined as possessing the lowest disposable endowment after transfer. The characterized individual preferences, represented by a linear combination of a social utility function increasing in the minimum consumption in society and an egoistic utility function increasing in one's own consumption, can support an endogenous social minimum by a benevolent utilitarian social planner. This paper evaluates the dynamics of the endogenous social minimum under various development scenarios, and reveals corresponding sufficient conditions for the social minimum to converge to (or never reach): i. the average endowment (equality of outcome), and ii. the lowest individual endowment (laissez-faire). Even in eventual laissez-faire cases, the social planner can facilitate higher transfers from rich social members to poor social members and minimize the consumption inequality. The endogenous social minimum can also be supported through voluntary contributions from social members following the common approach in public goods literature. Nevertheless, total voluntary contribution will converge to zero if the society expands, keeping the distribution of initial resource endowments unchanged.