Is Efficiency Biased?
51 Pages Posted: 16 Aug 2017 Last revised: 20 May 2018
Date Written: March 8, 2018
Efficiency is a watchword in policy circles. If we choose policies that maximize people’s willingness to pay, we are told, we will grow the economic pie and thus benefit the rich and poor alike. Who would oppose efficiency when it is cast in this fashion?
However, there are actually two starkly different types of efficient policies: those that systematically distribute equally to the rich and the poor and those that systematically distribute more to the rich.
Our collective failure to grasp this distinction matters enormously for those with a wide range of political commitments. Many efficient policies distribute more to the rich, without the rich having to pay for their bigger slice. Because these “rich-biased” policies are ubiquitous, efficient policymaking places a heavy thumb on the scale in favor of the rich. Especially at this time of heightened concern about inequality, getting efficiency right should matter to a wide swath of the policymaking spectrum, from committed redistributionists to libertarians. We should support efficient policies only when the poor are compensated for their smaller slices or when efficient policies systematically distribute equally to the rich and the poor neutrally as we grow the size of the economic pie.
The Article points a way forward in ensuring that a foundational tenet of the law does not follow a “rich get richer” principle, with profound consequences for policymaking.
Keywords: law and economics, efficiency, inequality, tax policy, political economy
JEL Classification: H21, H41, K00
Suggested Citation: Suggested Citation