From: Robin Hanson (rhanson@gmu.edu)
Date: Wed Sep 27 2000 - 12:24:26 MDT
Hal Finney wrote:
> > Standard economic theory and Paretian policy analysis is very general and
> > can speak to the future scenarios of interest to us. It often, but far
> > from always, supports the sort of policy conclusions that libertarians
> > come to. When they disagree, I tend to go with economic theory.
>
>By itself economic theory cannot deliver a policy, as it is value neutral.
>I'm not sure exactly what you mean by Paretian policy analysis ...
>An economy lacks Pareto optimality if some people can be made better
>off without anyone being made worse. This is a plausible candidate for
>providing policy guidance, but I suspect that it is weak in practice.
>Given the complexities of the world it will be hard to tweak a system
>to make everyone better (or no worse) off.
Perhaps "contractarian" is a clearer descriptor. When there is no
uncertainty, it is usually relatively easy to figure out how to make
everyone better off (from their subjective point of view). And while there
may be many ways to do this, they typically all have the same "policy" and
differ only in who should transfer how much cash to who else in compensation.
Economists are often willing to advocate that the policy be adopted even
without the transfers, under the presumption if we averaged over enough
policy issues, the transfers would tend to cancel each other, making
everyone better off with the zero-transfer total policy.
When there is uncertainty, economists are typically willing to focus on
the early viewpoint, where people do not know how the uncertainty will be
resolved. We look for policies which are better for each person on average,
even though they might end up being worse for some people depending on how
the uncertainty resolves itself. This early viewpoint is mathematically
equivalent to a situation without uncertainty when it contains no secrets
(things some people know that others do not).
When there are secrets, economists typically focus on an even earlier
perhaps imaginary situation where there were no secrets, i.e., when people
did not know which particular secret they would learn. This allows us to
reduce situations with secrets to situations of no-secrets uncertainty,
which are equivalent to situations without uncertainty, where it is
relatively easy to find clearly best policies that make everyone better
off.
Economists sometimes go even further, and focus on hypothetical early
situations where there is greater symmetry across people. For example,
one way to compare a poor world with many people to a rich world with
few people is to imagine that each possible person who might exist is
uncertain about whether they will actually exist. They then would face a
choice between existing for sure in a poor world and only having a chance
of existing in a rich world.
>... I would suggest that a substantial portion of government activities
>today do not flow from a simple Pareto optimality criterion.
The field of law and economics attempts to understand much existing law
in terms of the sorts of laws people would agree to if they sat down
and drew up contracts about it long before getting into a dispute.
People have also had some success, though limited, at understanding
many other things governments do in similar terms. But I certainly
won't defend existing governments as being the best of all possible
by these sort of criteria.
Robin Hanson rhanson@gmu.edu http://hanson.gmu.edu
Asst. Prof. Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030-4444
703-993-2326 FAX: 703-993-2323
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