Economics Dictionary of ArgumentsHome
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| Efficiency: Economic efficiency is the optimal allocation of resources to produce the greatest possible output. It is a state where resources are used in a way that maximizes the satisfaction of human wants and needs._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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John R. Hicks on Efficiency - Dictionary of Arguments
Parisi I 278 Efficiency/Kaldor/Hicks: The Kaldor–Hicks efficiency criterion asks whether the beneficiaries from the change (in legal rule or policy) could theoretically fully compensate the losers for their losses, and still remain better off. To satisfy the Kaldor–Hicks efficiency criterion, “Resources are allocated efficiently in a system of wealth maximization when there is no reallocation that would increase the wealth of society” (Posner, 1980(1), p. 243). The compensation to losers is possible in principle and need not actually occur. The Kaldor–Hicks criterion is generally seen as the efficiency objective of the aggregate wealth maximizer who tries to assign legal rights so as to maximize the total value of all goods and services. >Compensation. This policy amounts to assigning ownership to the would-be highest bidder—the party who, in the outside observer’s estimation, would end up owning the right if costless bargaining had taken place in a hypothetical market with zero transaction costs (Harper, 2013(2), p. 64). Thus in the law and economics literature this weaker form of the optimality criterion is used as a normative standard. The key requirement for conducting Kaldor–Hicks analysis is the ability to gather and sum up people’s willingness to pay attached to different outcomes. This assumes a higher level of knowledge in the hands of the policymaker, judge, or economist. For economists using the Austrian approach, this is a pivotal and problematic assumption. Kaldor–Hicks analysis requires objective data to aggregate individuals’ willingness to pay and therefore uses existing prices. However, existing prices tell us about exchanges to which individuals have consented, whereas Kaldor–Hicks analysis requires consideration of hypothetical exchanges that have not taken place, and which will perhaps never take place, making the discovery of the requisite information difficult (Stringham, 2001(3), p. 43). In real-life examples of legal cases, Kaldor–Hicks analysis is used when there is a dispute that is complex and there is no willingness to exchange, and where similar cases with objective data that may be substituted is difficult to come by. This automatically limits the applicability of this type of cost–benefit analysis in traditional law and economics. >Cost-Benefit Analysis. 1. Posner, R. A. (1980). “The Ethical and Political Basis of the Efficiency Norm in Common Law Adjudication.” Hofstra Law Review 8: 487–507. 2. Harper, D. A. (2013). “Property rights, entrepreneurship and coordination.” Journal of Economic Behavior and Organization 88: 62–77. 3. Stringham, E. P. (2001). Kaldor-Hicks efficiency and the problem of central planning. Quarterly Journal of Austrian Economics 4(2): 41–50. Rajagopalan, Shruti and Mario J. Rizzo “Austrian Perspectives on Law and Economics.” In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
EconHicks I John R. Hicks Mr. Keynes and the "classis"; a suggested reinterpreation 1937 Parisi I Francesco Parisi (Ed) The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017 |
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> Counter arguments against Hicks
> Counter arguments in relation to Efficiency
