Equity Criteria as Instrument to Ensure Sustainability of Pareto or Kaldor-Hicks Efficiency: A Correlation Hidden by Sources of Confounding as Key for Sorting Out the Global Economic Crisis

Piero Benazzo

MPRA Paper from University Library of Munich, Germany

Abstract: The hypothesis is that Pareto and Kaldor-Hicks Efficiency have an aspect of sustainability in relation to inequality. The analysis finds efficient situations reached increasing inequality as diminishing in the long term effective demand in a larger measure than counterbalancing increases thanks to total factor productivity growth. Equity and efficiency in welfare economics, rather than being quite contrasting objectives, are as such related and mutually necessary. As such countries are called to implement redistributive policies together with Kaldor-Hicks movements. These would make some parts of the economic agents less well off, while they would reinstate effective demand on the demand side. This latter increases output and wealth throughout the economy for all economic agents in general. Redistributive policies increase also imports, benefiting third countries and remunerating therefore their potential free-rider behaviour. The concerned demand side policies, requiring cooperation and redistribution, call the international institutions to coordinate their action for harmonizing such policies and restrain free-rider behaviour.

Keywords: paradigm; inequality; total factor productivity growth; confounding; pareto efficiency; kaldor-hicks efficiency; cost-benefit analysis; effective demand; sustainability; sustainable development; global economy (search for similar items in EconPapers)
JEL-codes: A10 B40 C0 D31 D33 D61 D63 E01 E12 E19 E21 F02 I31 J31 O11 O12 O33 O43 (search for similar items in EconPapers)
Date: 2010-04-22
New Economics Papers: this item is included in nep-mac
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