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Efficiency First or Equity First?: Two Principles and Rationality of Social Choice

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  • Tadenuma, Koichi
  • 蓼沼, 宏一

Abstract

The Pareto efficiency criterion is often in conflict with the equity criteria as no-envy or as egalitarian-equivalence: An allocation x that is Pareto superior to another allocation y can be inferior to y in consideration of equity. This paper formalizes two differnet principles of social choice under possible conflict of efficiency and equity. The efficiency-first principle requires that we should always select from efficient allocations, and when the efficiency criterion is not at all effective as a guide for selection, i.e., when all the available allocations are efficient or there is no efficient allocation, we should apply an equity criterion to choose desirable allocations. The equity-first principle reverses the lexicographic order of application of the two criteria. We examine rationality of the social choice rules satisfying these two principles. It is shown that the degree of rationality varies widely depending on which principle the social choice rules represent. Several impossibility and possibility results as well as a characterization theorem are obtained.
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Suggested Citation

  • Tadenuma, Koichi & 蓼沼, 宏一, 1998. "Efficiency First or Equity First?: Two Principles and Rationality of Social Choice," Discussion Papers 1998-01, Graduate School of Economics, Hitotsubashi University.
    • Handle: RePEc:hit:econdp:1998-01
    Note: October 1996; Revised version: June 1998
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    References listed on IDEAS

    as
    1. Kotaro Suzumura, 1996. "Interpersonal Comparisons of the Extended Sympathy Type and the Possibility of Social Choice," International Economic Association Series, in: Kenneth J. Arrow & Amartya Sen & Kotaro Suzumura (ed.), Social Choice Re-Examined, chapter 15, pages 202-229, Palgrave Macmillan.
    2. Suzumura, Kotaro, 1981. "On pareto-efficiency and the no-envy concept of equity," Journal of Economic Theory, Elsevier, vol. 25(3), pages 367-379, December.
    3. Feldman, Allan M & Kirman, Alan, 1974. "Fairness and Envy," American Economic Review, American Economic Association, vol. 64(6), pages 995-1005, December.
    4. Diamantaras, Dimitrios & Thomson, William, 1990. "A refinement and extension of the no-envy concept," Economics Letters, Elsevier, vol. 33(3), pages 217-222, July.
    5. Varian, Hal R., 1974. "Equity, envy, and efficiency," Journal of Economic Theory, Elsevier, vol. 9(1), pages 63-91, September.
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    More about this item

    JEL classification:

    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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