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The Efficiency of Equity

  • Stephan Klasen

In standard neoclassical economics, efficiency and equity issues are largely treated as separate and separable issues. While this has been challenged within and outside the neoclassical tradition for some time, this paper argues that four recent strands of literature largely within the neoclassical tradition provide a solid empirical foundation for this challenge. These four strands refer to: (1) findings from the experimental literature on the importance of equity or fairness; (2) the subjective well-being literature on the importance of relative incomes and inequality on subjective well-being; (3) the distribution-adjusted well-being literature that combines measures of mean incomes with measures of income inequality to derive welfare judgments across space and time; and (4) the literature on the relationship between income and gender inequality and economic growth. All of these literatures provide a sound empirical basis for arguing that greater equity is critical for greater efficiency.

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Article provided by Taylor & Francis Journals in its journal Review of Political Economy.

Volume (Year): 20 (2008)
Issue (Month): 2 ()
Pages: 257-274

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Handle: RePEc:taf:revpoe:v:20:y:2008:i:2:p:257-274
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  1. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
  2. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May.
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  6. Amiel, Yoram & Creedy, John & Hurn, Stan, 1999. " Measuring Attitudes towards Inequality," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(1), pages 83-96, March.
  7. Ravallion, Martin & Chen, Shaohua, 2007. "China's (uneven) progress against poverty," Journal of Development Economics, Elsevier, vol. 82(1), pages 1-42, January.
  8. Galor, Oded & Weil, David, 1995. "The Gender Gap, Fertility and Growth," CEPR Discussion Papers 1157, C.E.P.R. Discussion Papers.
  9. Dani Rodrik, 1998. "Where Did All The Growth Go? External Shocks, Social Conflict, and Growth Collapses," NBER Working Papers 6350, National Bureau of Economic Research, Inc.
  10. Stephen Knowles & Paula K. Lorgelly, 2002. "Are educational gender gaps a brake on economic development? Some cross-country empirical evidence," Oxford Economic Papers, Oxford University Press, vol. 54(1), pages 118-149, January.
  11. Lipton, Michael & Ravallion, Martin, 1995. "Poverty and policy," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 41, pages 2551-2657 Elsevier.
  12. Mattias Lundberg & Lyn Squire, 2003. "The simultaneous evolution of growth and inequality," Economic Journal, Royal Economic Society, vol. 113(487), pages 326-344, 04.
  13. Hoffman, Elizabeth & McCabe, Kevin A & Smith, Vernon L, 1996. "On Expectations and the Monetary Stakes in Ultimatum Games," International Journal of Game Theory, Springer, vol. 25(3), pages 289-301.
  14. Boland, Lawrence A, 1979. "A Critique of Friedman's Critics," Journal of Economic Literature, American Economic Association, vol. 17(2), pages 503-22, June.
  15. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
  16. Kakwani, Nanak, 1981. "Welfare measures : An international comparison," Journal of Development Economics, Elsevier, vol. 8(1), pages 21-45, February.
  17. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
  18. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
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