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Economic Analysis, Moral Philosophy and Public Policy-Cambridge University Press.pdf
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Economic Analysis,Moral Philosophy,and Public Policy
Second Edition
DANIEL M. HAUSMAN
University of Wisconsin
MICHAEL S. McPHERSON
The Spencer Foundation
Contents
Preface page ix
introduction 1
1 Ethics and Economics? 3
1.1 What Are Moral Questions and How Can They Be
Answered? 4
1.2 How Is Moral Philosophy Relevant to Economics? 8
1.3 Organization 10
2 Ethics inWelfare Economics: Two Examples 12
2.1 A Shocking Memorandum 12
2.2 Eight Distinctive Features of Welfare Economics 13
2.3 The Economic Benefits of Exporting Pollution to LDCs 16
2.4 Summers’s Argument and a Further Feature of Welfare
Economics 17
2.5 Is Summers Right? Should theWorld Bank Encourage
Migration of Dirty Industries to LDCs? 20
2.6 School Vouchers 23
2.7 Conclusions 29
3 Ethics in Positive Economics: Two Examples 30
3.1 Is Unemployment Involuntary? 31
3.2 Overlapping Generations 38
3.3 Conclusions 41
i rationality and morality 43
4 Rationality 45
4.1 Certainty and Ordinal Utility Theory 46
4.2 Expected Utility Theory 51
4.3 Questions about Utility Theory 55
v
vi Contents
5 Rationality in Positive and Normative Economics 60
5.1 Rationality and Positive Economics 60
5.2 Preference Satisfaction and Pareto Efficiency 64
5.3 Rationality and Ethics in Positive Economics 67
5.4 Self-Interest and Moral Motivation 72
5.5 Conclusions 76
6 Rationality, Norms, and Morality 78
6.1 Rationality and Self-Interest 79
6.2 The Influence of Moral Norms on Economic Behavior 80
6.3 How Do Norms Motivate andWhat Sustains Them? 85
6.4 Philosophical Implications 89
6.5 Morality and Utility Theory 91
6.6 Conclusion: On the Rationality of Morality 94
ii welfare and consequences 97
7 Utilitarianism and Consequentialism 99
7.1 Clarifying Utilitarianism 100
7.2 Interpersonal Comparisons of Well-Being 104
7.3 Justifying Utilitarianism 107
7.4 Contemporary Consequentialism 109
7.5 Is Utilitarianism Plausible? 112
7.6 Consequentialism and Deontology 113
7.7 Conclusion: Should Economists Embrace Utilitarianism? 116
8 Welfare 118
8.1 Theories of Well-Being 119
8.2 Is the Standard View of Welfare Plausible? 120
8.3 EquatingWell-Being and Preference Satisfaction 122
8.3.1 Changing and Conflicting Preferences and
Preferences Based on False Beliefs 123
8.3.2 Assessing Preferences 125
8.4 Modifying the Preference Satisfaction View 128
8.5 Alternative Theories of Welfare 129
8.6 Conclusions 133
9 Efficiency 135
9.1 “Efficiency” as Pareto Optimality 136
9.2 HowWelfare Economics Narrows Normative Questions 140
9.3 Cost–Benefit Analysis 144
9.4 Objections to Cost–Benefit Analysis 147
9.5 Cost–Benefit Analysis as a Social Practice 151
9.6 Conclusion:Welfare Economics in Limbo 152
Contents vii
iii liberty, rights, equality, and justice 157
10 Liberty, Rights, and Libertarianism 159
10.1 Freedom 160
10.2 What Are Rights? 163
10.3 The Importance of Rights 164
10.4 The Justification of Rights 166
10.5 Weighing Rights, Liberties, andWelfare 167
10.6 Libertarianism 168
11 Equality and Egalitarianism 174
11.1 Why Equalize? 177
11.1.1 Equality Is Intrinsically Good 178
11.1.2 Equality and Priority for theWorst-Off 179
11.1.3 Intrinsic Connections between Equality and
Other Ends 181
11.2 Equality of What? 183
11.2.1 Equality of Welfare 184
11.2.2 Equality of Resources 185
11.2.3 Equality of Opportunity forWelfare 190
11.2.4 Equality of Capabilities 191
11.3 Complex Equality and Equality of Moral Status 192
11.4 The Measurement and Importance of Inequality 195
12 Justice and Contractualism 198
12.1 The Social Contract Idea 199
12.2 Justice as Reciprocity: Rawls’s Theory of Justice 201
12.2.1 Contractualism and the Original Position 202
12.2.2 Rawls’s Principles of Justice 203
12.2.3 Implications of Rawls’s Principles 206
12.2.4 Justice and Pluralism 207
12.3 Justice as Mutual Advantage: David Gauthier 209
12.4 Other Contractualist Views 211
12.5 Conclusion: Social Contract Reasoning and Economics 212
iv moral mathematics 215
13 Social Choice Theory 217
13.1 The SocialWelfare Function and Arrow’s Theorem 217
13.2 The Interpretation of Arrow’s Theorem 220
13.3 Social Choice Theory and Moral Philosophy 222
13.4 The Paradox of the Paretian Liberal 225
13.5 The Range of Social Choice Theory 228
13.5.1 The Logical Coherence of Social Judgments 228
13.5.2 Formal Representations of Freedom and
Opportunity 228
viii Contents
13.5.3 Should Egalitarians Aim to EqualizeWelfare? 230
13.6 Conclusions 232
14 Game Theory 234
14.1 What Is a Game? 234
14.2 Moral Philosophy and Some Simple Games 239
14.3 Cooperation and Justice 243
14.4 Paradoxes and Difficulties 245
14.5 Bargaining Theory and the Social Contract 251
conclusions 257
15 Pollution Transfers and School Vouchers: Normative
Economics Reconsidered 259
15.1 Do Vouchers and Pollution Transfers Make People
Better-Off ? 261
15.2 A Utilitarian Perspective on Pollution Transfers 265
15.3 OtherWays of Evaluating Vouchers and Pollution
Transfers 267
15.3.1 Rights, Freedoms, Pollution, and Vouchers 267
15.3.2 Equality, Pollution, and Vouchers 268
15.3.3 Justice, Pollution, and Vouchers 269
15.4 Conclusions 272
16 Economics and Ethics, Hand in Hand 274
16.1 Involuntary Unemployment and Moral Baselines 274
16.2 The Overlapping Generations Example 278
16.3 Pressing Problems 279
16.3.1 Ethnic and Religious Conflict 281
16.3.2 Global Inequalities 283
16.3.3 Environmental Protection and GlobalWarming 285
16.4 Conclusions 289
Appendix: How Could Ethics Matter to Economics? 291
A.1 Objection 1: Economists as Engineers 292
A.2 Objection 2: Positive Economics Is Value Free 295
A.2.1 Positive and Normative Economics 296
A.2.2 On the Independence of Ethics and Economics 297
A.3 The Rationality of Normative Inquiry 297
A.4 How Knowing Ethics Contributes to Positive Economics 299
A.5 Conclusions 306
Glossary 309
References 315
Index 335
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