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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.

Suggested Citation

  • Benazzo, Piero, 2010. "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," MPRA Paper 23678, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:23678
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    File URL: https://mpra.ub.uni-muenchen.de/23678/1/MPRA_paper_23678.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Amartya Sen, 1981. "Ingredients of Famine Analysis: Availability and Entitlements," The Quarterly Journal of Economics, Oxford University Press, vol. 96(3), pages 433-464.
    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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

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

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • C0 - Mathematical and Quantitative Methods - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • A10 - General Economics and Teaching - - General Economics - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • E19 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Other
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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