Answer to Question #53545 in Microeconomics for Gautam Guha

Question

Explain why efficiency is not sufficient to address equality issues.

Answer 1

The current heated debates over the threatened closure of libraries and the future of every conceivable type of public service bear testament to the fact that just because something is labelled ‘non-essential’ or ‘less efficient’ does not mean that its disappearance or scaling back will be non-contentious. If we are all part of the ‘Big Society’, so the logic goes, we should all have a say in what we think is fair and reasonable.

The debates over the so-called ‘efficiency – equity tradeoff’ highlight the fact that the dilemma has no easy resolution. It challenges us to be much more explicit and clear about what we mean by ‘efficiency’ and ‘equity’. When we talk about ‘efficiency’ in healthcare, for example, it is not always clear whether we are referring to achieving a specified health gain with the minimum number of inputs (i.e. ‘technical efficiency’), achieving a specified health gain at the least cost (i.e. ‘economic efficiency’), or maximising health gain from a specified level of resources (i.e. ‘allocative efficiency’).