So far we have suggested that WILLINGNESS TO PAY provides a way of measuring how much happiness individuals receive from the allocation of resources. The obvious problem with this approach is that income--the "coupons" underlying the bidding procedure--is unequally distributed across society. In 1991, before taxes and transfers, the average income of the poorest 20 percent of households in the United States was $7,272, compared to $88,101 for the richest 20 percent.¹ In some countries, the difference between the top and bottom is even greater. Simply put, there are very poor people and there are very rich people and this causes problems when we use the willingness to pay approach to determine valuations.

If some of the old man's heirs from the previous chapter were provided with 1000 coupons, while other heirs were provided with only 100, the "richer" heirs would be able to bid away most of the estate for themselves. The poorer heirs would have a difficult time getting the estate's goods even when they anticipated receiving more happiness from their consumption than the rich heirs.

Let's take an even more direct example. Suppose an extremely wealthy man owns a fleet of Rolls Royces. His butler, however, has no car and must use smelly, crowded public transportation. The wealthy man decides that he wants a new Rolls Royce because he always rather liked the ones with the mauve interior. The butler wants a car so badly that he would be overjoyed if he could just have a Ford Pinto. But alas, he cannot afford even an awful car. According to the willingness to pay procedure, who gets the car? It goes to the fabulously wealthy man who already has a Rolls for every day of the week. The poor butler gets nothing.

In this case, resources are directed to the wealthy man, but are they directed to the use that produces the most happiness? The answer is probably not, though we cannot be certain. It is possible that the butler hates driving and likes using public transportation, and it is possible that the rich man receives intense pleasure from the mauve Rolls Royce. But we are willing to concede that in this case using the willingness to pay procedure to divide up resources probably did not maximize happiness. More generally, we are willing to acknowledge that a billionaire probably values an extra dollar's worth of goods less than a poor person.

If this is an objection which you have with the willingness to pay approach--and we emphasize that it is a perfectly reasonable objection--we have a solution. Simply GIVE POOR PEOPLE MORE MONEY. If we distribute money more evenly, then we are back to something like our previous example of auctioning off the dead man's estate to generate maximum happiness--an approach that had much to recommend it.²

Now don't misunderstand us. We do not personally advocate equalizing incomes or possessions as a policy prescription. The redistribution of income is a messy and difficult procedure, even when everybody is in agreement that this is the thing to do. And it has negative side-effects that many believe outweigh its benefits. However, we want to emphasize that determining the highest valued use of a resource is a different issue than determining the best initial distribution of incomes.³ If this problem with the willingness to pay approach really bothers you, then let's reallocate incomes so that there's a fairer distribution of "coupons" in society. With redistribution, we would still have a way of measuring happiness. And without some way of measuring happiness, we'd be in the dark about how to direct resources to increase society's happiness.

What about the alternatives? Aren't there some other ways of measuring happiness? We've already seen that surveys and questionnaires have major flaws in their ability to measure happiness. One possibility that we haven't considered yet is voting. Allocating resources by majority vote has the attraction that everyone gets one vote. This solves the unequal distribution of income problem. On the other hand, voting suffers from some pretty serious problems of its own. For example, how are the voters supposed to know whether June Smith of Mobile, Alabama or Ralph Diminico of New Haven, Connecticut will get the most pleasure from a new Plymouth Voyager with air conditioning, front-wheel suspension, and cruise control? We'll talk about voting later on in this book, and we'll see that there are some instances in which voting can serve as a reasonable measure of societal happiness. But when it comes to allocating most of the goods of society, voters are no better able to determine the highest valued use of a good than was the estate executor in the last chapter.

Well...maybe we don't really need a measure of happiness. Aren't there other ways of directing goods and services that don't require a measure of happiness? Indeed there are. For example, one alternative is to ration goods so that everyone receives an equal share. That eliminates the problem of trying to determine highest valued use. But why should a person who prefers meat receive the same amount of sugar every year as someone with a sweet tooth, who in turn receives too much meat and not enough sugar? And ration economies generally aren't very successful in getting producers to produce enough goods for everyone to have a reasonable share. In fact, history has demonstrated that economies which don't concern themselves with the question of highest valued use tend not to do very well over the long haul. There's a reason, you know, why we call it the former Soviet Union.

Clearly, willingness to pay isn't a perfect measure of happiness. Is it better than all the other alternatives? Ultimately, that's a question you have to decide for yourself. If you think that willingness to pay does not provide an adequate measure of the happiness that poor people receive from goods and services, then our advice is to give poor people more money--but preserve the approach. If you reject the willingness to pay approach, then you need to come up with something better. What do YOU suggest? It is our judgement that no better measure exists.