Monday, April 19, 2010

More on fairness

Last week I wrote about fair pricing. This week is about fairness and a change in pricing regimes. Under what circumstances is a change in pricing fair? At the Rutgers April 9th meeting (which will soon be avaialble online), Frank Felder took up that question directly, while William Hogan proceeded from a conditional : if an existing system is fair, what changes are allowable that would retain its fairness? These are really issues about efficiency and fairness. The easiest cases occur when there is no change in fairness but a gain in efficiency, or even better, a gain in both. Anything else puts the two on a collision course - something we are often hard pressed to take seriously, because the assumptions of standard economics with which we have been raised tell us this is impossible. For that theory tells us that the most efficient outcome is the fairest outcome. But of course that is only true when the idealized assumptions (like equal initial endowments, perfect information and a high number of market participants) of the theory are satisfied. How much should we care if fairness and efficiency do come apart in utility pricing? Must we choose? Philosophers shy away from using rights talk in the premises of arguments for anything but negative rights – the right not to be interfered with. If there is a right to food, housing, or even utility services, these come as the conclusion of arguments. I think these are harder arguments to make than people think. On the other hand, I don’t think it is hard to make the argument that there is a prima facie right to a fair share of such goods. Indeed, I would claim that recognize this right is at the core of what it is to take on the moral “point of view”. Thinking like this makes it easier to ground the idea that in the case of greenhouse gasses, the safe annual global budget (about 18 gigatons) should be divided on a per capita basis, and given as a tradable right. For now we think of this in terms of nation states. But it is not outlandish to imagine the proliferation of information technology that would allow individuals to be assigned such rights and to trade both them, and some sort of associated non-renewable energy allowance. Why do that rather than relying on the existing market? Because as we saw earlier, a market system only marries fairness to efficiency if we can assume an equal endowment of resources, perfect information and the like. Trying to backward engineer that into the existing market is next to impossible. On the other hand, overlaying a market for tradable rights on top of existing markets may allow us to do just that.

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