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Markets, Morals, and the Law$
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Jules L. Coleman

Print publication date: 2002

Print ISBN-13: 9780199253609

Published to Oxford Scholarship Online: January 2010

DOI: 10.1093/acprof:oso/9780199253609.001.0001

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Efficiency, utility and wealth maximization

Efficiency, utility and wealth maximization

(p.95) 4. Efficiency, utility and wealth maximization
Markets, Morals, and the Law

Jules L. Coleman

Oxford University Press

This chapter argues that two states of affairs, S' and S, can be Kaldor-Hicks efficient to each other (the Scitovsky paradox), whereas S' and S cannot each contain more utility than the other. So from the fact that S' is Kaldor-Hicks efficient to S, it cannot be inferred that S' increases utility over S. This leads to the contradictory conclusion that S and S' increase utility with respect to each other. Based on the fact that a social state, S, is Pareto optimal, no inference about whether the move to it from a previous social state increases utility can be warranted — at least not without a standard of interpersonal comparability. The chapter goes on to show that only Pareto superiority bears the desired relationship to utilitarianism; that is, if S' is Pareto superior to S, then S' increases utility with respect to S. The rest of the chapter discusses at length various lines of defense for normative economic analysis.

Keywords:   economic efficiency, utility, wealth, Kaldor-Hicks efficiency, social state, Pareto superiority, resource allocation, utilitarianism

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