Efficiency and Equity in a Socially Embedded Economy
58 Pages Posted: 9 Aug 2021 Last revised: 4 Apr 2022
Date Written: August 7, 2021
A model that only focuses on economic relations, and in which efficiency and equity are defined in terms of resource allocation may miss an important part of the picture. We propose a canonical extension of the standard general equilibrium model that embeds economic activities in a larger game of social interactions. Such a model combines general equilibrium effects with social multiplier effects and considerably enriches the analysis of efficiency and equity. Efficiency involves coordination between economic and social interactions, may depend on social norms, and may strongly interact with the distribution of resources. Equity can be defined in a comprehensive, socioeconomic way, and a decomposition into an economic and a social component is possible.
Keywords: social interactions, efficiency, equity
JEL Classification: A13, D50, D60
Suggested Citation: Suggested Citation