Economic Efficiency

Uwe Reinhart has been explaining what economists mean by efficiency:

http://economix.blogs.nytimes.com/2010/08/20/is-more-efficient-always-better/

http://economix.blogs.nytimes.com/2010/08/27/when-value-judgments-masquerade-as-science/

Steve Landsburg is quoted and responds:

http://www.thebigquestions.com/2010/08/30/efficiency-experts/

How do economists judge efficiency? A popular method is the so-called Kaldor-Hicks criterion.

Consider the following scenario due to SL: a rich man likes to play loud music and his poorer neighbor likes his peace and quiet. If the poorer guy would be willing to give up his quiet for $1000 and the rich guy would be willing to pay $10,000 to pollute the world with noise, KH says that an ordinance prohibiting noise is inefficient, and in fact produces a dead-weight loss (a favorite term for SL) of $9000 since the rich guy loses a benefit he values at $10 k and the poor guy only gains something he values at $1 k. More efficient, say the believers, would be letting the rich guy pay the poor guy say $3 k, so that the rich guy gets $10 k of value for $3 k and the poor guy nets $2 k after allowing for the $1 k loss of his quiet.

I have a version that I like to consider more pointed. Suppose there is a supply of nutritious grain which can be made into a nutritious gruel capable of sustaining 10 poor families for a year. They can only afford to pay $1000 each family for the grain. Suppose further, that there is a rich man who can afford $20,000 buy the same grain to keep and feed his herd of truffle hunting pigs that supply the truffles for his Sunday night dinner. There would be a $10 k dead weight loss if we let the grain go to the hungry people, so the efficient thing is for them to starve.

Cheers!

Comments

Post a Comment

Popular posts from this blog

Anti-Libertarian: re-post

The most pointed critique of social security and liberalism in general is the libertarian critique. The problem with libertarians, for a liberal, is that we have too much in common. We both believe in individual rights, tolerance of individual differences, and dislike government prescription of religion. The basic difference, it seems to me, is the different answers we give to Cain's (with thanks to the Captain - my original version had the corpse asking the question!) famous question: "Am I my brother's keeper?" That's not really my basic bitch against the libertarians though. My real complaint is the same as my complaint against most religion - its premise is a fraud. For those who can't stand to wait for the punchline, I believe that trying to implement libertarian principles leads to tyranny or social disintegration. Demonstrating that takes some historical (and pre-historical) context. For all but the last 15,000 or so of the 100,000 years the human spec...
Read more

Uneasy Lies The Head

Uneasy lies the head that wears a crown ........... Shakespeare Henry IV, Part II. So it is with us and our slightly distant primate cousins , so it seems. A 9-year study of wild baboons in Kenya by Princeton University and the Institute of Primate Research may turn conventional assumptions of alphas males upside down. The study found that alpha males have high testosterone levels, which allows them to dominate other baboons, get access to more food, and attract better mates. This is expected. Surprisingly, though, the alpha males also have high levels of stress hormone glucocorticoid, which scientists measured from their feces samples. In fact, the stress of alpha baboons was on par with low-ranking baboons. The convention wisdom is that access to food and females provides life security and thus less stress for dominant males. Conversely, weak males who are constantly threatened by starvation and physical violence from stronger males are thought to be more stressed. The st...
Read more

We Call it Soccer

The US played its best, and maybe only good game of World Cup, but lost thanks to brilliant goalkeeping by the Swedish keeper and the bizarre method soccer uses to settle ties when three US stars could not put the ball on frame from the 12 yard spot.  At the end it came down to a blocked shot that spun in by maybe a couple of centimeters. Well, that's football - too much like life.   Which brings me to a modest proposal.  Replace the thirty minute overtimes with as many 7-player 15 minute periods as needed to settle it.  Scoring should be much easier with fewer players.
Read more