Reconstructing, elaboration and criticism of efficiency as guiding principle for cooperation and state action

Abstract

What is the appeal to the notion of Pareto efficiency, and how can it be used in cooperating and state provided mechanisms? These are the questions this thesis tries to answer. It starts by searching for reasons why individuals would formulate principles that would put limits on their actions, but simultaneously be in their self-interest. The Pareto efficiency principle as guidance to cooperate is then compared with the difference principle of Rawls. Pareto optimality is subsequently shown as a win-win situation, which provides some security – no one will lose gains in Pareto improvements and the allocation is aimed at improving until the best allocation is reached. The principle is to be weighed against principles of justice, developed by Rawls. The principle is justifiable, but not as the sole bearer of justice. It can be used in different ways by states to promote welfare of its people. The next chapter develops the differing social benefits notion, based on Joseph Heath’s writings. This explains how different preferences of people evolve, and can be met by public goods, instead of market exchanges. Public goods are seen as the hierarchical (conceptualized by Williamson) alternative to market transactions. Then, another idea of Heath is worked out: When social benefits are valued at the same level as regular benefits (products and services), much more state action can be made justifiable, especially when invoking the Pareto principle. The state could work in its actions much clearer towards efficiency, if other benefits of cooperation, than gains from trade, are given equal weight. This results in the idea that state actions are strongly aimed at providing efficiency. The powers a state can work even more effective towards Pareto efficiency. However, a state also has limitations, in that it is difficult to find out the preferences of individuals. Surveys provide a solution, but also have their limits.