The Pigou–Dalton principle (PDP) is a principle in welfare economics, particularly in cardinal welfarism.
Named after Arthur Cecil Pigou and Hugh Dalton, it is a condition on social welfare functions.
It says that, all other things being equal, a social welfare function should prefer allocations that are more equitable.
In other words, a transfer of some defined variable (for example utility or income) from the rich to the poor is desirable, as long as it does not bring the rich to a poorer situation than the poor.
Suppose that at the first profile: and at the second profile: Then, the social-welfare ordering should weakly prefer the second profile
, since it reduces the inequality between agent 1 and agent 2 (and may switch which is richer), while keeping unchanged the sum of their utilities and the utilities of all other agents.
PDP was suggested by Arthur Cecil Pigou[3]: 24 and developed by Hugh Dalton[4]: 351 (see, e.g., Amartya Sen, 1973 or Herve Moulin, 2004).