Halstead comments on Economics, prioritisation, and pro-rich bias   - Effective Altruism Forum

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Comment author: ThomasSittler 03 January 2018 07:44:18AM *  1 point [-]

It's generally agreed that Pareto efficiency is a very weak criterion; for any economy, there are always infinitely many Pareto efficient points and only one (or a few) allocatively efficient point(s). Wikipedia:

It is possible to have Pareto efficiency without allocative efficiency: in such a situation, it is impossible to reallocate resources in such a way that someone gains and no one loses (hence we have Pareto efficiency), yet it would be possible to reallocate in such a way that gainers gain more than losers lose (hence without such a reallocation, we do not have allocative efficiency).

The difficult problem of resource allocation is to get people to reveal their preference honestly. As you point out, someone's willingness to pay is a pretty poor proxy for marginal benefit to the person. But you do need a mechanism for deciding who will get the tickets. Price ceilings (underpricing the tickets) are generally thought to be a very bad way to do so. (In a very simple model, people will queue, or otherwise signal their willingness to "pay", until the costs to them are just as high as the market equilibrium price. Hence in real terms a price ceiling would be like the ticket company selling the tickets at market prices, but then using part of the revenue to pay people to stand in line uselessly. Something like this happened with the oil price ceiling.)

Comment author: Halstead 03 January 2018 12:14:27PM 0 points [-]

Thanks, yes I agree with all of that. My post was a critique of one argument for market prices, not an argument against market prices.

Comment author: ThomasSittler 03 January 2018 02:27:38PM 1 point [-]

I think there's some misunderstanding going on. The argument you critique is: "In a market, goods go to those with the highest willingness to pay. Hence the resulting allocation is socially optimal (according to some social welfare function)". I don't think anyone in economics makes that argument. The only claim is that allocations that result from a market are Pareto efficient (under some strong assumptions, which I'm sure you're familiar with. See the first fundamental theorem of welfare economics). Again, the real question is: if not markets, then what?

Comment author: Halstead 03 January 2018 02:48:56PM *  0 points [-]

but people in economics do make the argument that charging prices such that supply and demand are in equilibrium improves allocative efficiency.

Comment author: ThomasSittler 03 January 2018 02:58:54PM 0 points [-]

Relative to what?

Comment author: Halstead 03 January 2018 03:19:04PM 0 points [-]

relative to charging prices where demand is in excess of supply

Comment author: ThomasSittler 08 January 2018 12:25:07PM 0 points [-]

for the reasons i explained above, i think many economists believe this is true (in many situations). But they don't use the argument you attribute to them to do so.