The New Debate
Edited by Tyler Cowen and Eric Crampton
Chapter 6: Information and efficiency: another viewpoint
1 Harold Demsetz The importance of bringing economic analysis to bear on the problems of efficient economic organization hardly requires comment, but there is a need to review the manner in which the notion of efficiency is used in these problems. The concept of efficiency has been abused frequently because of the particular approach used by many analysts. My aim is to examine the mistakes and the vagueness associated with this approach. I shall focus attention on the problem of efficiently allocating resources to the production of information because in this case the issues stand out clearly. Since Kenneth J. ArrowÕs paper ÔEconomic Welfare and the Allocation of Resources for InterventionÕ2 has been most influential in establishing the dominant viewpoint about this subject, my commentary necessarily is a critique of ArrowÕs analysis. The view that now pervades much public policy economics implicitly presents the relevant choice as between an ideal norm and an existing ÔimperfectÕ institutional arrangement. This nirvana approach differs considerably from the comparative institution approach in which the relevant choice is between alternative real institutional arrangements. In practice, those who adopt the nirvana viewpoint seek to discover discrepancies between the ideal and the real and if discrepancies are found, they deduce that the real is inefficient. Users of the comparative institution approach attempt to assess which alternative real institutional arrangement seems best able to cope with the economic problem; practitioners of this approach may use an ideal norm to provide standards from which divergences are...
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.