The Paretian Liberal Paradox and ecological economics

Abstract

Two of the most basic considerations in collective choice are the Pareto principle and some minimal protection of individual rights. In his Impossibility Theorem, Sen (1970) shows that there is a potential inconsistency between preference sovereignty (as expressed by the Pareto condition) and the protection of minimal rights (a liberal or liberty condition). The Paretian Liberal Paradox (PLP), and the extensive debate surrounding it, prompts serious reconsideration of the traditional welfare economics approach. The critique of welfarism made by the PLP is of central importance for environmental issues given pervasive externalities, missing markets, uncertainty, and potential irreversibilities. Making collective choice decisions on these issues may require using explicit “non-utility” information and restricting individual preference sovereignty. We explore the implications of the PLP for long-term environmental policy and the transdisciplinary field of ecological economics. As a simple pedagogical device relying on sparse principles, the PLP stimulates an increased awareness of the potential conflict between preferences and rights. Recognition of the PLP focuses attention on what counts as admissible information in collective choice rules. For example, consideration of the PLP illuminates differences in the informational requirements of alternative sustainability concepts.