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Efficiency Isn’t Always Our Greatest Concern
Hearing about mass violence puts that in perspective
I took introductory economics at Brown. It was probably required for the environmental studies degree I hoped to get. It was 1999, and our textbook was the version of N. Gregory Mankiw’s Principles of Economics that had been published the previous year.
One theory taught by the book was that the private market reaches efficient outcomes as long as everyone does their own cost-benefit analysis.
Suppose that Dick likes his dog, but his neighbor Jane can’t stand the barking (a “negative externality” of the dog). The Golden Rule, “Do unto others as you would have them do unto you,” generally asks us to reflect upon the positive externalities we’d like to receive and the negative externalities we’d like to avoid. Yet Jane can’t rely on Dick’s altruism. She might therefore offer to pay him to get rid of his dog. When they both consider what their dog-related positions are worth to them in dollars, it may be that Dick would turn down any offer below $1,000 while Jane would not offer any amount above $800, in which case the dog would stay put. In that scenario, Dick keeping his dog turns out to be the efficient outcome for both Dick and Jane, because he evidently cares more than she does.
