An individual's willingness to pay for a good not only depends on how much they value that good, but also on their income level (at least under the conventional non-economics definition of the word 'value').
Consider the case with a single indivisible unit of a good and 2 consumers, a very wealthy consumer and a very poor consumer. Even if the poor consumer would benefit more from receiving the good than the wealthy consumer (let's say the good is a drug that the poor consumer medically needs but the rich consumer wants to take recreationally), the 'efficiency-maximizing' free market will still give the good to the wealthy consumer under most conditions. The wealthier consumer has a higher willingness-to-pay not because the good is worth more to them, but because a single dollar of their wealth is worth less.
The normative idea that a good should always go to the individual with the highest willingness to pay is then surely flawed. The policy objective of maximizing surplus, which follows from this idea, must also be flawed. Given how glaring this problem is, I am surprised to see so many papers that still use WTP-derived consumer surplus in their normative analysis.
My questions are:
-What does the literature have to say about this issue?
-Have alternative measures of surplus been proposed?
-Is my reasoning flawed/is the measure of CS not as unfair as I am suggesting?
Partly inspired by some of the arguments in this thread: What does economics say about "price gouging" during an emergency?