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Equity Criteria as Instrument to Ensure Sustainability of Pareto or Kaldor-Hicks Efficiency: A Correlation Hidden by Sources of Confounding as Key for Sorting Out the Global Economic Crisis

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  • Benazzo, Piero

Abstract

The hypothesis is that Pareto and Kaldor-Hicks Efficiency have an aspect of sustainability in relation to inequality. The analysis finds efficient situations reached increasing inequality as diminishing in the long term effective demand in a larger measure than counterbalancing increases thanks to total factor productivity growth. Equity and efficiency in welfare economics, rather than being quite contrasting objectives, are as such related and mutually necessary. As such countries are called to implement redistributive policies together with Kaldor-Hicks movements. These would make some parts of the economic agents less well off, while they would reinstate effective demand on the demand side. This latter increases output and wealth throughout the economy for all economic agents in general. Redistributive policies increase also imports, benefiting third countries and remunerating therefore their potential free-rider behaviour. The concerned demand side policies, requiring cooperation and redistribution, call the international institutions to coordinate their action for harmonizing such policies and restrain free-rider behaviour.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23678.

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Date of creation: 22 Apr 2010
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Handle: RePEc:pra:mprapa:23678

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Keywords: paradigm; inequality; total factor productivity growth; confounding; pareto efficiency; kaldor-hicks efficiency; cost-benefit analysis; effective demand; sustainability; sustainable development; global economy;

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  1. Sen, Amartya, 1981. "Ingredients of Famine Analysis: Availability and Entitlements," The Quarterly Journal of Economics, MIT Press, vol. 96(3), pages 433-64, August.
  2. Zerbe, Richard Jr. & Bauman, Yoram & Finkle, Aaron, 2006. "An aggregate measure for benefit-cost analysis," Ecological Economics, Elsevier, vol. 58(3), pages 449-461, June.
  3. Barro, Robert J., 2008. "Inequality and Growth Revisited," Working Papers on Regional Economic Integration 11, Asian Development Bank.
  4. Francesco Caselli & Nicola Gennaioli, 2005. "Credit Constraints, Competition, and Meritocracy," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 679-689, 04/05.
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