Abstract
New welfare economics prescribes that if there exists a potential gain from a policy measure it should be recommended no matter whether the actual compensation is paid or not. In theory, it is a strong value judgment since it does not take c...
Abstract
New welfare economics prescribes that if there exists a potential gain from a policy measure it should be recommended no matter whether the actual compensation is paid or not. In theory, it is a strong value judgment since it does not take care of the distributional bias. A necessity of actual compensation fits into the context from this point. If a policy change has a positive efficient gain but has a distributional bias which imposes an effective barrier against the change, then compensating the losers will be an efficient arrangement, given the condition that the compensation necessary to secure consent is smaller than the quantity by which the community's output will rise as a consequence of effecting a policy change.
Arguments against actual compensation are, however, logically persuasive if we stand purely on ethical ground ; measurement problems, moral hazard costs, the possibility of overcompensations, philosophical issues, public choice problems and so on. In this paper, we argue that compensation should be treated as a strategic vehicle to nurturing an institutional arrangement for an implementation of a certain policy reform which is desirable. That is, compensation should not be treated as a means to improve welfare unanimously as new welfare economics would suggest, in which sense compensation is largely unwarranted. More importantly, arguments against compensation may be positively exploited for meaningful guidelines of actual compensation.
Some implicit conclusions are derived from this survey. First, compensation payments (the collection of revenue for the compensation) should take the form of lump-sum payments (tax). Second, compensation payments should be designed and organized strategically rather than from the ethical considerations. In this sense, compensation payments should enlarge the flexibility and feasibility of a certain policy change and should not be a binding constraint. Third, Time dimension of compensation payments is very important ; dynamically, moral hazard problems should be minimized. Fourth, the method of extracting resources for compensation payments should be considered simultaneously ; transfer mechanism itself should become a strategy. In a positive direction, compensation policy would constitute another policy change. If we stand on pragmatic imperatives, a question whether we compensate or not is no more relevant since they become special cases when compensation equals zero and full. In this framework, arguments against compensation turn into guidelines by which actual compensation could be scrutinized and evaluated.