Equity Considerations in Economic and Policy Analysis

Abstract

There is little doubt that equity considerations play some role in human decision making. This can be seen through statements that we are all created equal, or that we have equal This can also be seen through some of the transfer mechanisms that societies are willing to put in place for the benefits of the poor or the malnourished. In spite of this evidence, the role of equity in resource allocation remains poorly understood. Most economic analyses tend to focus on efficiency issues and avoid addressing distribution issues. As argued by Sen (1987, 1992), as long as human behavior is affected by equity considerations, it seems that economics could be made more productive by paying greater attention to welfare distribution. At the center of equity is whether and how to distinguish between people in terms of their needs, their abilities, their contributions, and their individual rights. People being different, at least some of their differences seem to be relevant to the economic evaluation of equity issues. At this point, it remains somewhat unclear how to approach such issues. The current debate about equity has been profoundly influenced by Rawls's Theory of Justice. Rawls's theory is based on the concept of justice as fairness.1 It relies on a so-called original where individuals do not yet know their exact position in society. Rawls suggests that a society is just if its current members would find the original fair. Rawls's views have been influential, yet controversial. Part of the debate comes in part from some antagonism between equity, and rights (e.g., Nozick). And private property rights are often seen as contributing to inequalities of wealth in modern society. The objective of this paper is to explore equity issues, with a special focus on interactions between efficiency, equity, and the role of information in resource allocation. In the next