Dec 08, 20 to be more concrete, if there really is an equality efficiency trade off at a broad level, then there should be no single regulatory change that can increase both equality and efficiency, since if there exists such a reform, or set of reforms, it negates the entire aggregation to a macro level trade off. Arthur m okun a revised version of the authors lecture on social issues presented in the series of essentials of free government and duties of the citizen. This claim still appears to form the implicit premise underlying much of public policymaking. The tradeoff applies at the frontier of the possibility set of combinations of economic performance and income equality available to policy makers.
Equality and efficiency, the big tradeoff by arthur m. Efficiency vs equality the big tradeoff about a century ago. To be more concrete, if there really is a real life equalityefficiency tradeoff at a broad level, then there should be no single regulatory change that can increase both equality and efficiency. The big tradeoff, arthur okun argued that pursuing equality can reduce efficiency the total output produced with given resources. The tradeoff between efficiency and equity vox, cepr. This argument is borrowed from economics literature on market efficiency.
To address these questions, one has first to note a subtle but important point in the interpretation of economic theory. The big tradeoffis a very personal work from one of the most important macroeconomists of the last hundred years. May 19, 2015 the questions arthur okun raised 40 years ago in his classic equality and efficiency. In this revised and expanded version of the godkin lectures presented at the john f. Its premise, as the title suggests, was that government faced a choice. On the efficiencyfairness tradeoff management science.
And this new edition includes further thoughts on equality and efficiency, a paper published by the author two years lat. Is there a tradeoff between the two or do they go hand in hand. The trade off between equality and efficiency edgar k. Its political and social institutions distribute rights and privileges universally and proclaim. Jun 22, 2012 in the health systems literature one can see discussions about the trade off between the equity achievable by the system and its efficiency. Figure 1 the tradeoff between economic performance and equality. Okun clarifies the issues surrounding the tradeoff between equality and efficiency, rather than taking a firm position on the issue of how much society should exchange one for the other. The money must be carried from the rich to the poor in a leaky bucket. The first three chapters follow in the vein of john lockes second treatise on government. Okun makes several policy recommendations, of which my favorite is a broadening of the tax base, to destroy loopholes that were never intended by legislators such as the use of trusts to skip a generation of estate taxesand disposing of the preferential lower rates afforded to capital gains and dividends.
An equity efficiency tradeoff exists whenever activity in a given market may simultaneously increase productive efficiency and decrease distributive equity, or vice. The notion of an equityefficiency trade off has misdirected thinking. The big tradeoffthe share of income going to the top 1 percent of u. Opinion liberty, equality, efficiency the new york times. In his influential 1975 book equality and efficiency. The trade off applies at the frontier of the possibility set of combinations of economic performance and income equality available to policy makers.
Okun makes several policy recommendations, of which my favorite is a broadening of the tax base, to destroy loopholes that were never intended by legislators such as the use of trusts to skip a generation of estate taxesand disposing of the preferential lower rates afforded. Was rather hoping for a more spirited pointofview than this highlyacademic elucidation of the issue. Its political and social institutions distribute rights and privileges universally and proclaim the equality of all citizens. The big tradeoff is a very personal work from one of the most important macroeconomists pdf the equity efficiency tradeoff in retrospect citeseerx original argument for an equity efficiency tradeoff. Before the imposition of redistributive taxes the pie or resources available to society is. Some of it will simply disappear in transit, so the poor will not receive all the money that is taken from the rich okun 1975. However, economic efficiency will suffer and our economic pie will grow more slowly. Summers wrote, arts capacity for well rounded wisdom regarding the most important issues of the day was nowhere better illustrated than in equality and efficiency. On may 4, 2015, on the 40th anniversary of okuns equality and efficiency book, summers provided remarks at a brookings institution celebration.
In short, okuns big tradeoff doesnt seem to be a tradeoff at all. The tension between equality and efficiency is offered for trade using the picture of a pie. In the application of the economic argument to health, however, serious. In the pantheon of economic theories, the tradeoff between equality and efficiency used to occupy an exalted position. The big tradeoff, believed that public policies revolved around managing the tension between those two values. The questions arthur okun raised 40 years ago in his classic equality and efficiency. The tradeoff between efficiency and equality cadmus eui. A big issue in economics is the tradeoff between efficiency and equity. Efficiency is concerned with the optimal production and allocation of resources given existing factors of production. The big tradeoff are relevant to todays policy debates over inequality and economic growth. Okun 1975 dubbed it the big tradeoff and explained it by the metaphor of the leaky bucket. Okun may be best remembered for okuns law, but his lasting legacy is the. Okun 1975 dubbed it the big tradeoff and explained it by the metaphor of. The tradeoff between equality and efficiency edgar k.
May 04, 2015 on may 4, 2015, on the 40th anniversary of okuns equality and efficiency book, summers provided remarks at a brookings institution celebration. With regards to efficiency, the concept he invokes of the leaky bucket is both useful and memorable as a tool for thinking about redistribution from the rich to the poor. May 29, 2016 figure 1 the trade off between economic performance and equality. The year before okun delivered his harvard lectureslater published as equality and efficiency. Blyth and hopkin 2012 cast a shadow on okuns big tradeoff by showing.
The late yale university and brookings institution economist said that not only can more equal distribution of incomes. Efficiency is about the functional relationship between useful work or sought outputs of a system or process and the level of inputs. Kennedy school at harvard university in april 1974, arthur m. Essentially it is argued that as greater health equity is achieved, so the level of efficiency will diminish. If we promote equality, we will have more income redistribution through taxes, more fairness, and a common living standard. The big tradeoff is a very personal work from one of the most important macroeconomists of the last hundred years. To be more concrete, if there really is an equalityefficiency tradeoff at a broad level, then there should be no single regulatory change that can increase both equality and efficiency, since if there exists such a reform, or set of reforms, it negates the entire aggregation to a macro level tradeoff. Okun explores the conflicts that arise when societys desire to reduce inequality would impair economic efficiency, confronting policymakers with the big tradeoff. The equalityefficiency tradeoff suggests that yahoo. Originally published in 1975,equality and efficiency. Equity is concerned with how resources are distributed throughout society. Dec 01, 2010 in this revised and expanded version of the godkin lectures presented at the john f. Equality and efficiency is the perfect embodiment of that legacy, valued both by professional economists and those readers with a keen interest in social policy. Its premise, as the title suggests, was that government faced a choice in fashioning its economic and social policies.
May 10, 2015 the essay was called equality and efficiency. Equality and efficiency, the big tradeoff book, 1975. Different types of efficiency equity is concerned with how resources are distributed throughout society vertical equity is concerned. The big tradeoff is a very personal work from one of the most important macroeconomists. The american economist arthur okun, whose classic work on the topic is called equality and efficiency. Apr 30, 2015 originally published in 1975, equality and efficiency. Some of it will simply disappear in transit, so the poor will not receive all the money that is taken from the rich p.
The big tradeoff between efficiency and equity is it there. By juxtaposing equity and efficiency in the way it is traditionally done in the literature, we presuppose that the real sought output of the system is a known and agreed. And this new edition includes further thoughts on equality and efficiency, a paper. Contemporary american society has the look of a splitlevel structure. They award prizes that allow the big winners to feed their pets better than the losers can feed their. And this new edition includes further thoughts on equality and efficiency, a paper published by the author two years later. The big tradeoff remains an influential work from one of the most important macroeconomists over the last century, arthur m. Okun, 1975, the brookings institution edition, in english.
Johnson university of virginia this paper uses a 1976 microdata base to estimate the marginal cost of reducing income inequality with a policy that has distributional effects similar to the present taxtransfer system. We deal with the problem of selecting the appropriate objective from this family. Equality and efficiency, the big tradeoff 1975 edition. Jun 22, 2012 the idea that there is a trade off between achieving equity and achieving efficiency has its roots in economics, and the labour economist arthur okuns idea of the big tradeoff between equality and efficiency. Oclcs webjunction has pulled together information and resources to assist library staff as they consider how to handle. We characterize the tradeoff achieved between efficiency and fairness as one selects different objectives and develop several concrete managerial prescriptions for.
The most essential tradeoff in economics is that between efficiency and equity. Dec 12, 2019 a big issue in economics is the tradeoff between efficiency and equity. Some of it will simply disappear in transit, so the poor will not. An equityefficiency tradeoff exists whenever activity in a given market may simultaneously increase productive efficiency and decrease distributive equity, or vice. Sep 08, 2019 increasing equality in an efficient economy. Reliable information about the coronavirus covid19 is available from the world health organization current situation, international travel. Yet economic institutions, with efficiency as their guiding principle, create disparities among citizens in living standards and material welfare. Economist arthur okun has said that we should consider equality and efficiency.
The first three chapters follow in the vein of john lockes second treatise on government and milton friedmans capitalism and freedom. This marked the lowest such share since these records began in 19. Forty years after its initial publication, equality and efficiency. In that book, he affirmed that efficiency is bought at the cost of inequalities in income and wealth, thus suggesting that societies faced a big tradeoff. By juxtaposing equity and efficiency in the way it is traditionally done in the literature, we presuppose that the real sought output of the system is a known. Okun 19281980 published an influential book, equality and efficiency. Efficiency vs equality the big tradeoff economics assignment. In fact equality appears to be an important ingredient in promoting and sustaining growth. Originally published in 1975, equality and efficiency. But it is distributed unequally as the outcome of the market forces, even after correction of market failures, provides people with very unequal earnings. The big tradeoff arthur okun explains why both the state and the market is needed for an equitable and efficient society. Numerous and frequentlyupdated resource results are available from this search. The year before okun delivered his harvard lectureslater published as equality and.
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