Logic is a harsh mistress: welfare economics for economists

Abstract

AbstractEvery economic explanation assumes maximization. How strange, then, that few economists accept one of maximization's most straightforward implications:every observed institution is efficient. My aim is to persuade economists of this fact and thus to dissuade them from making illogical claims about social welfare. To frame my argument, I consider the “property rights approach” to institutions developed by Yoram Barzel. I speculate that economists resist what maximization implies about institutional efficiency because they think that efficiency-always precludes them from improving the world, and hope of improving the world is what attracted them to economics in the first place. But, besides being inconsistent, resistance is unnecessary: efficiency-always does not preclude economists, or anyone else, from improving the world.