Unbiased Analysis of Today's Healthcare Issues

Efficiency vs. Equity

Written By: Jason Shafrin - Jan• 24•10

Most economists focus on the concept of “economic efficiency.” The basic concept of economic efficiency is to maximize the overall resources available to society.  However, often times economists ignore the importance of equity (i.e., the distribution of resources within a society).

Tyler Cowen reminds us that seeking economic efficiency blindly is not ideal, especially in the case of natural disasters as the one that hit Haiti.  Below is an excerpt:

I still believe that foreign aid does not raise economic growth rates, on average.  But aid can alleviate human misery, such as when a visiting doctor gives vaccines or hands out medicine.  (In fact per capita income may fall, as a result, if some “weaklings” are kept alive.)…

Imagine U.S. troops liberating Buchenwald.  Would any commentators say the following?  “Don’t give him that blanket, sell it to him!”  “Hey buddy, get a job!”  “Moral hazard: they’ll just go get captured again.”  etc.  I don’t think so.

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One Comment

  1. Ahnaf says:

    “The basic concept of economic efficiency is to maximize the overall resources available to society” – This conception of efficiency seems somewhat mistaken.

    Situation A is more economically efficient than situation B if every one in A is at least as well off (in terms of utility) as in B and at least one person is strictly better of in A than in B. Its not a resource maximization problem. Resource availability maximization does not necessarily make a situation more efficient than another.

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