Truth or Economics

Truth or Economics: On the Definition, Prediction, and Relevance of Economic Efficiency

Richard S. Markovits
Copyright Date: 2008
Published by: Yale University Press
Pages: 520
https://www.jstor.org/stable/j.ctt1npcpb
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  • Book Info
    Truth or Economics
    Book Description:

    Is economic efficiency a sound basis upon which to make public policy or legal decisions? In this sophisticated analysis, Richard S. Markovits considers the way in which scholars and public decision-makers define, predict, and assess the moral and legal relevance of economic efficiency.

    The author begins by identifying imperfections in the traditional definition of economic efficiency. He then develops and illustrates an appropriate response to Second-Best Theory and investigates the moral and legal relevance of economic-efficiency analyses. Not only do virtually all economic, legal, and public policy thinkers misdefine economic efficiency, the author concludes, they also ignore or respond inadequately to Second-Best Theory when analyzing the economic efficiency of public choices and misassess the relevance of economic-efficiency conclusions both for moral evaluations and for the answer to legal-rights questions that is correct as a matter of law.

    eISBN: 978-0-300-14522-9
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Acknowledgments
    (pp. ix-xii)
  4. Introduction
    (pp. 1-18)

    Both economists in general and law and economics scholars of all backgrounds devote a great deal of attention to economic efficiency. Some studies executed by such scholars focus exclusively on the economic efficiency of the private choice or government policy they analyze. And others that primarily investigate the impact of some choice or policy on price, unit output, investment, seller profits, and/or relevant consumer equivalent-dollar¹ gains or losses conclude with a section that purports to establish the implications of their findings for the economic efficiency (and allegedly derivatively, the “social optimality”) of the choice or policy in question. This book...

  5. Part One The Definition of Economic Efficiency
    • Chapter 1 The Correct Definition of the Impact of a Choice on Economic (Allocative) Efficiency
      (pp. 21-47)

      Chapter 1 has four sections. The first articulates the monetized definition of the impact of a choice on economic efficiency that I think is correct, explores its critical features, and explains why it is correct. The second elaborates on this definition by analyzing whether those equivalent-dollar effects of a choice that reflect the external or bad preferences of the individual who experiences them should be ignored when calculating the choice’s allocative efficiency. The third points out that my argument for the correctness of my monetized definition of the impact of a choice on allocative efficiency defeats the claim that there...

    • Chapter 2 A Critique of the Definitions of and Tests for Economic Efficiency That Economists and Law and Economics Scholars Use
      (pp. 48-62)

      Economists and law and economics scholars use one or more of the following four definitions of or tests for economic efficiency—the Pareto-superior/Pareto-inferior definition, the Kaldor-Hicks test, the Scitovsky test, and the potentially-Pareto-superior definition. This chapter delineates, comments on, and criticizes each.

      According to this definition, a choice or policy is said to increase allocative efficiency if and only if it brings the economy to a Paretosuperior position—that is, if and only if it makes one or more individuals better off and no one worse off. Relatedly, on this definition, a choice or policy is said to decrease allocative...

  6. Conclusion to Part I
    (pp. 63-72)

    Part I has delineated the criteria by which definitions of such concepts as the impact of a choice on economic efficiency should be evaluated, proposed the definition that these criteria warrant, and explained why the various definitions of this concept that economists and law and economics scholars have proposed and continue to use are incorrect—namely, they are inconsistent with both popular understanding and professional usage, and they create concepts that are not useful.

    Part I’s analysis is valuable for at least seven reasons. First, from a purely academic perspective (hopefully in the nonpejorative sense of this adjective), it is...

  7. Part Two The Assessment of Economic Efficiency
    • [Part Two Introduction]
      (pp. 73-78)

      Part I argued that, on its correct definition, the impact of a private choice or public policy on economic efficiency equals the difference between the equivalent-dollar gains it confers on its beneficiaries and the equivalent-dollar losses it imposes on its victims. However, economists have never tried to assess a choice’s or policy’s impact on economic efficiency by identifying all or a random sample of its winners and losers and estimating their respective equivalent-dollar gains and losses. In part, this fact reflects the unreliability of the responses that a policy’s actual winners and losers would give to questions about its impact...

    • Chapter 3 The Distortion-Analysis Approach to Economic-Efficiency Assessment
      (pp. 79-270)

      Chapter 3 has four sections. Section 1 sets the stage for its successors by (1) delineating the three major stages of the resource-allocation process, the major category of economic inefficiency that can be generated at each, and the various subtypes of each major category of economic inefficiency, (2) explaining in general the ways in which each Pareto imperfection can misallocate resources in an otherwise-Pareto-perfect economy, and (3) illustrating the way in which the various types of Pareto imperfections interact to cause one kind of economic inefficiency—the economic inefficiency that results when a worker makes an economically inefficient marginal choice...

    • Chapter 4 Some Second-Best-Theory Critiques of Canonical Allocative-Efficiency Analyses and of the Standard Justifications for Ignoring Second Best
      (pp. 271-342)

      Chapter 3 explained The General Theory of Second Best and delineated and exemplified an approach to allocative-efficiency assessment that I believe responds appropriately to second-best theory. More specifically, Chapter 3 argued that this distortion-analysis approach is third-best allocatively efficient in that it takes appropriate account of the multiplicity of resource-use types, the Pareto-imperfectness of all economies, the fact that the allocative efficiency of reducing or eliminating a target imperfection depends on the other imperfections that will remain in the system, and the inevitable cost and imperfectness of both theoretical and empirical work. Chapter 3 also made two important critical assertions...

  8. Part Three The Relevance of Allocative-Efficiency Conclusions
    • [Part Three Introduction]
      (pp. 343-376)

      Part III focuses on (1) the relevance of the allocative efficiency of a choice or course of conduct to its justness or moral desirability, moral rights considerations aside, in the societies at which the economists this book discusses are directing their policy recommendations and (2) the relevance of the allocative efficiency of an interpretation or application of the law to its correctness as a matter of law in the societies in question. Chapter 5 presents my own analysis of and conclusions about these issues, and Chapter 6 delineates and criticizes various arguments and contrary conclusions that have respectively been made...

    • Chapter 5 The Prescriptive-Moral and Legal Relevance of Allocative-Efficiency Conclusions
      (pp. 377-401)

      This chapter analyzes the relevance of the allocative efficiency of a choice to its justness in a liberal, rights-based society and to its moral desirability, moral-rights considerations aside, and the relevance of the allocative efficiency of an interpretation or application of the law to its correctness as a matter of law or its moral desirability in a liberal, rights-based society. The chapter has four sections. Section 1 analyzes the connection between a choice’s allocative efficiency and its justness in a liberal, rights-based society; Section 2, the connection between a choice’s allocative efficiency and its moral desirability, moral-rights considerations aside, in...

    • Chapter 6 A Critique of Various Relevance Arguments Made by Economists and Law and Economics Scholars
      (pp. 402-420)

      This chapter has five sections. Section 1 states and criticizes various general positions that economists and law and economics scholars take on such matters as the coherence of the concept of moral rights, the coherence of moral norms that value anything other than total utility or the equality of the distribution of utility, and the moral attractiveness of any such norms that are coherent. Section 2 states and criticizes three arguments that economists and/or law and economics scholars have made for the justness of all allocatively efficient choices or decisions. Section 3 states and criticizes an argument that economists and...

  9. Conclusion
    (pp. 421-436)

    This Conclusion has four sections. The first summarizes the book. The second illustrates its critique of the way in which economists and law and economics scholars analyze allocative efficiency by criticizing a well-respected law and economics analysis of the allocative effi-ciency of protecting commercial and personal privacy. The third reviews some facts the book established that support the claim that the scholars whose work it criticizes either knew or should have known that they were making the mistakes it demonstrates they made. The fourth makes some brief comments about the implications of the book for economists and law and economics...

  10. Notes
    (pp. 437-490)
  11. Glossary of Frequently Used Symbols and the Concepts for Which They Stand
    (pp. 491-498)
  12. Index
    (pp. 499-507)