How Efficiency/Equity Tradeoffs Resolve through Horizon Effects

• Published in: Journal of economic issues 2005-06, Vol.39 (2), p.365-373
• Main Author: Jennings, Frederic B.
• Format: Article
• Language: English
• Subjects: Analysis; Competition; Ecological competition; Ecological economics; Economic competition; Economic costs; Economic efficiency; Economic models; Economic policy; Economic theory; Efficiency; Equity; Financial markets; Horizontal integration; Increasing returns; Organizational theory; Social engineering; Studies; Tradeoffs
• ISSN: 0021-3624; 1946-326X
• DOI: 10.1080/00213624.2005.11506813

The so-called efficiency/equity tradeoff emerges from the notion that competition is efficient and that the financial incentives spurring output do not consist with equity in the outcomes so achieved. Distributional equity is seen to conflict with the allocative efficiency of individuals seeking gain within a competitive frame. But is competition truly efficient? The claim is seldom probed, despite its sundry flaws. Special exceptions to market "perfection" may be general laws. The underlying conditions of the case for competition need more attention than they get. The interdependence of social relations should be our first concern. Human associations in a myopic competitive world are rivalrous: substitution and tradeoffs serve as economic descriptions thereof. Economists' substitution assumptions show competition to be efficient: the opposition of wants is better resolved through bidding than force. Substitution depends substantially on diminishing returns, which only apply to short-term models with some input taken as fixed. But long-term production technology yields to increasing returns in cost.