Table of Contents

Handbook of Economics and Ethics

Handbook of Economics and Ethics

Elgar original reference

Edited by Jan Peil and Irene van Staveren

The Handbook of Economics and Ethics portrays an understanding of economic methodology in which facts and values, though distinct, are closely interconnected in a variety of ways. From theory building to data collection, and from modelling to policy evaluation, this encyclopaedic Handbook is at the intersection of economics and ethics.

Chapter 15: Efficiency

Irene van Staveren

Subjects: economics and finance, behavioural and experimental economics, history of economic thought


Irene van Staveren Introduction The dominant economic theory, neoclassical economics, employs a single economic evaluative criterion: efficiency. Moreover, it assigns this criterion a very specific meaning. Other – heterodox – schools of thought in economics tend to use more open concepts of efficiency, related to common sense understandings of cost-saving and preventing waste. Also, to assess the state of an economy, heterodox schools of thought tend to draw upon additional evaluative criteria, such as stability, equity and sustainability. Economics’ widespread concern with efficiency is, of course, implied in the well-known definition of the subject as ‘the study of the allocation of scarce resources to alternative ends’. Here, the aspect regarded as mattering most is simply which allocation of resources helps to achieve the most ends. However, efficiency has not always dominated economic evaluation. For Adam Smith, a good economy was characterized not only by efficiency in exchange, but also by moral sentiments underlying the functioning of markets. A market economy, Smith argued in his Wealth of Nations, should combine efficiency and equity: ‘It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged’ (Smith [1776] 1981, p. 96). John Stuart Mill considered a good economy one that provides freedom for all agents, including the socially and politically marginalized, such as women. This requires not only the negative freedom of markets, but also positive...

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