Ex Ante Efficiency and Ex Post Equality Chris Wonnell Professor of Law University of San Diego

Efficiency Concepts A search for a modest normative criterion acceptable to people who disagree about distributive justice and interpersonal comparisons. Pareto efficiency: The problem of scope Kaldor-Hicks efficiency (or cost-benefit): Not directly useful as a common ground value. But could multiple iterations of K-H be defended as promoting Pareto efficiency?

Problems with K-H as Proxy Value for Indirect Pursuit of Pareto Systematic Losers, especially the poor. But redistribution might help. The problem of large losses. Especially losses that are hard to compensate with gains from other plays. A possible solution to the large loss problem: Ex ante efficiency.

Adler and Sanchirico’s egalitarian challenge to Ex Ante Efficiency Social Welfare Functions might have an equality component. Example: SW=W1+W2-1/2(|W1-W2|). Ex Ante Efficient moves might be undesirable. Example: Status Quo utilities of 100 and 100 or SW of 200. Change leads to 50% chance of 75, 130 and 50% chance of 130, 75. In example, SW under each state is 75+130-1/2(|130-75))=177.5 SW has fallen even though both people’s expected utility increases.

Is Equality an Ex Ante value? If equality is an ex ante value (equality of prospects), then no paradox. Adler and Sanchirico offer three reasons why equality is an ex post value: Dynamic consistency The sure thing principle Compatibility with concrete moral intuitions

Dynamic Consistency The problem: An ex ante egalitarian will be inconsistent over time. Example: pain and suffering insurance. Inconsistency plagues all consequentialist systems. If no last period and discount rate moderate, practice of carrying out multistage policies can dominate alternatives of always starting over or creating exceptions.

Sure Thing Principle: The Objection Stated Independence axiom: Decision maker will ignore portion of compound lottery where result is a sure thing. 50% chance of $1 or $1 million (for sure) won’t affect risk taking regarding the remaining 50%. Ex ante egalitarian planner will reject sure thing principle. If Person 1 wins for sure under “heads”, planner will prefer different risk profile under “tails” than if Person 2 wins for sure under “heads”.

Sure Thing Principle: Responses Independence axiom isn’t observed by individuals. Experimental evidence. Rational reasons based on regret, desire for certainty, need for planning. Can these costs be incorporated as part of the choice situation? Yes, but at risk of making independence axiom empty. Even if individuals observe, equality of prospects presents a reason for planner to reject independence axiom.

Egalitarian Hypotheticals Flood or terrorist incident: Is the equality problem avoided by equality of prospects? Human costs of inequality should be internalized ex ante. Is inequality without such human costs objectionable? The Twin Earth hypothetical. Veterans’ benefits example.

Prioritarian Models of Equality Possible SWF: SW=square root of U1 plus square root of U2. Each individual’s contribution to social welfare is independent of each other individual’s status. Individual’s welfare is optimized across states by being risk averse with respect to welfare. No reason for the planner to evaluate risks differently.