
Is ‘More Efficient’ Always Better? - donohoe
http://economix.blogs.nytimes.com/2010/08/20/is-more-efficient-always-better/?src=twr
======
yummyfajitas
Summary of the article:

Pareto improvements are changes in allocation that harm no one. State A >
State B if A is a Pareto improvement on B, i.e. if no one in State A is worse
off than in State B and at least one person is better off.

This is a partial ordering, which means that for some states "A > B ==
undefined". The example is that (2,2) < (2,3) == TRUE (and similarly, (2,2) <
(3,2) == TRUE), but (2,3) < (3,2) is undefined.

Since Pareto efficiency can not evaluate all states relative to each other,
economists must define a total ordering which introduces subjectivity and
ethical choices.

------
Lagged2Death
"Astute readers will have figured out by now that literally every point
falling on the entire solid curve in the graph must be “Pareto optimal” by the
economist’s definition of that term..."

Isn't that wrong? I can see how it could be true for the points on the curve
between Y and Z. It's obviously not true for R and U, which result in
decreased happiness for someone.

What is the curve supposed to represent, anyway? Or to put it another way, why
is it on the graph? What does it mean? What purpose does it serve?

~~~
aamar
Y and Z are Pareto improvements on X, and they are also Pareto optimal. Points
on the line between X and Y are also Pareto improvements on X but not Pareto
optimal.

R and U are not Pareto improvements on X, because as you note some people lose
happiness, but they are Pareto optimal, since according to the model, no
further Pareto improvements can be made on those positions.

The point of the article, as I understand it, is that everyone would prefer
Pareto improvements, but these are often infeasible. Economists seem to prefer
Pareto optimums over non-optimums even when they are not Pareto improvements,
perhaps because the word "optimum" and "efficient" have such positive
suggestions.

I think the curve is sort of relevant to making this point, but the harder I
think about it, the more wrong it seems. It's meant to be (I guess) a
theoretical model for what different public policies can achieve. But we would
all prefer points between Y and Z to X, so why don't we enact policies that
achieve that? If those policies are impossible or undiscovered, we should
instead redraw the curve of optimality to reflect that, i.e. it should connect
R, X, and U.

~~~
zb
_But we would all prefer points between Y and Z to X, so why don't we enact
policies that achieve that?_

It seems to me that that becomes a whole lot more difficult in a society with
more than two members.

------
steveklabnik
This is a question I've been giving a lot of thought to over the last 6 months
or so. My conclusion:

We should be attempting to create an ethical, moral set of rules first, and
then optimizing for efficiency, rather than creating an efficient system and
then moralizing it.

Not that I have any answers for how to do this yet, but that's where I've
decided my priorities lie.

~~~
quanticle
Fortunately, this is a topic that has been widely discussed in academic
philosophical circles. Read Rawls' "Theory of Justice" - he goes into great
detail on how one ought to balance the competing forces of efficiency (e.g.
maximal utility) and distributive justice.

~~~
steveklabnik
Thanks, I'll check this out.

