Saturday, July 23, 2005

More Externality Abuse, eh?

Will Wilkinson discusses Richard Layard's idea that a person's envy of the income and success of others is a negative externality. Isn't this such a lot of nonsense? Why would we want to think that a person's resentment or jealousy of others is a matter of economic efficiency? I thought a negative externality was about a market failure to achieve an efficient allocation of resources, and not a matter of personal good or bad character.

This reminds me of what I thought was a relatively brief flirtation with "pareto optimal distribution" some 20 or 30 years ago. That earlier literature provided the genesis for my often used "Mutt and Jeff" discussions in my courses. I think my favorite article from that earlier literature was titled
Mutt and Jeff Ride Again: The Case of Malice and Envy.
Surely malice and envy are attitudes to consider and be concerned about when we run up against them in our relationships with others, and certainly malice and envy of others is something I hope we would consider character flaws in ourselves and others. But, we do not have questions here that are matters of an economically efficient allocation of resources.

Oh, one other thought. I can once again refer to one of my economists hereos (because of his clear thinking about matters in the realm of welfare or normative economics). E.J. Mishan wrote a devastating critique of pareto optimal distribution years ago, and if I could remember the citation I would offer it now.

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