Monday, August 3, 2009

Welfare and Liberty

I was talking about the Arrow "impossibility theorem" with a friend the other day, and was reminded of a paper by Amartya Sen (1976, Economica) that proves an application of the result. It basically goes like this: The principle of Pareto Efficiency (Optimality, that if everyone is at least as well-off under a certain policy than the status quo it should be pursued) is not completely compatible with personal liberty (that each person should be free to choose for themselves). In other words, he proves "the impossibility of the Paretian Liberal" (liberal in the classical sense, i.e. "libertarian"). The crux of it is that you can ideologically favor liberalism, but in certain circumstances this will lead to a loss in welfare, or utility for certain individuals. Politically, any party will argue for either side, depending on how it suits their perceived constituencies or predetermined preferences.

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