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The ethics of efficiency

Listed author(s):
  • Irene van Staveren

    (Institute of Social Studies, The Hague)

Efficiency is generally regarded as a value-neutral concept, concerned with assessing whether an economy produces at its possibility frontier, that is, generating maximum possible market output with given resources. Efficiency analysis generally rejects concerns with distribution – often referred to as equity – which leads to the common understanding of efficiency and equity as being trade-offs. This is also the comprehension of the widely applied Pareto efficiency criterion. There is a solid body of critique of the concept of Pareto efficiency, and much of it is concerned precisely with its exclusive focus on efficiency, which allows for equilibrium situations that are dramatically unequal. However sympathetic I am to this position, sharing the deep concerns about inequality and deprivation, I will argue here that the project of ‘normative economics’ is missing the point and not very helpful in challenging the inconsistencies in the Paretian efficiency concept or for developing alternative efficiency criteria. By complementing equity evaluations to efficiency evaluations, the critics, just like the proponents of Pareto efficiency, tend to accept the presumed trade-off between efficiency and equity. The problem is that the defense of normative economics, as complementary to positive economics, reduces ethics to the Humean ‘ought’ category of morality. In this paper, I will challenge the dichotomy between positive and normative economics, focusing on efficiency, and hence, I will challenge the idea of a necessary trade-off between efficiency and equity. I will argue, instead, that efficiency is not a ‘positive’ concept – as dealing with facts only – but intertwined with values.

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Paper provided by SCEME in its series SCEME Working Papers: Advances in Economic Methodology with number 018/2007.

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Length: 24 pages
Date of creation: Oct 2007
Handle: RePEc:sti:wpaper:018/2007
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