A Limited Defense of Efficiency Against Charges of Incoherency and Bias

Abstract

Scholars have long debated the appropriate balance between efficiency and redistribution. But recently, a wave of critics has argued not only that efficiency is less important, but that efficiency analysis itself is fundamentally flawed. Some say that efficiency is incoherent because there is no neutral baseline from which to judge inefficiency. Others say that efficiency is biased toward those best able to pay (generally, the rich). This essay contends that efficiency is not meaningfully incoherent or biased. The most widely discussed forms of efficiency do not require any particular baseline, and even those that do require a baseline can still serve as useful approximations of more theoretically sound but computationally demanding measures. Moreover, arguments of bias do not account for the source of funds in public projects, produce unintuitive results, and draw an arbitrary cutoff between bias and non-bias that elides important distributional details. Ultimately, the tradeoff between efficiency and redistribution remains the most useful frame for policy debate.