Characterising competitive equilibrium in terms of opportunity

This paper is the first draft of a technical appendix to a chapter of a book I am writing, with the provisional title The Community of Advantage. The central argument of the book will be that many elements of the (classically) liberal tradition of normative economics do not depend on assumptions about individual rationality, and so it is possible for a behavioural economist to work in that tradition. I will propose an approach to normative economics that differs both from neoclassical welfare economics and from the various variants of soft paternalism that are currently being proposed by behavioural economists. My approach has two distinctive features. First, it is written from a contractarian perspective. That is, it is addressed to citizens as potential parties to mutually beneficial agreements, and not to an imagined benevolent despot or social planner. (A first draft of this part of the argument has been published as Sugden [2013].) Second, its normative criterion is opportunity, not welfare, happiness or well-being. Sections 1 to 4 of this paper follow the analysis in McQuillin and Sugden (2012), specialised to the one-period case and with minor changes in notation. The set-up, and the definition of the ‘opportunity criterion’ are slightly different from those used in Sugden (2004). The differences are explained in McQuillin and Sugden (2012). The argument in Section 5 is new.