THE EQUITY-EFFICIENCY TRADE-OFF: BREIT RECONSIDERED *

Abstract

dividual satisfactions perfect equality should be achieved, with recent sophisticated Pareto optimality-based approaches to the choice of redistribution scheme, he offers a geometrical artifact (ibid., page 12) of his own. This is intended both to clarify the issues involved, and to illustrate simply how society's chosen combination of efficiency and inequality can be explained. Thus Breit posits a relationship between and inequality in money income, the output possibilities curve (henceforth OPC), in which is a concave function of the Gini coefficient. Output is maximized where, in the absence of any redistributive instrument, each factor of production is paid in accord with its marginal product. Redistributive schemes induce resources away from their most efficient uses. Preferences, expressed over (Gini, output) combinations in Breit's analysis, are represented by convex indifference curves, see Fig. 1. The resulting optimum defines society's choice of redistributive instrument, and some is traded for a limited reduction in equality. Breit's is an attractively simple pedagogic device, and in this paper we