Wednesday, April 12, 2006

RE: Efficiency and Deadweight Loss

NP - Rabih Abou-Khalil - Sweet Rain

I blogged a while back about the meaning of efficiency and deadweight loss - the answer I more or less came up with (although the definition Im still not exactly sure of) basically is to do with how much money can be made from doing an action as opposed to how much is actually made (in extremely crude terms).

I find this question to be of increasing importance as I study the aim of Structural Adjustment loans made by the IMF and the World Bank, and their effects on the economies of third world countries. The question of efficiency VS equity is no more important than it is here: who benefits from these so-called efficiency raising measures (the fact that they so rarely actually do raise efficiency is relevant as well, but beside the point for now)?

I think the exact definition of efficiency, and what this concept of deadweight loss actually refers to needs to be examined more closely. I will keep this in mind as I continue my reading on the neoliberal policies of the IMF and WB, and their stated goals of greater efficiency via market allocation of resources.

Posted by illogicist at 1:25 PM


  1. Blogger Blind Melon posted at 4/12/2006 03:39:00 PM  
    The definiton I know of Efficiency is basically the relationship between the quatities of factor inputs (labour, materials, etc..) used by a firm and the quatity of output which it is able to produce using these inputs.

    Where a firm is able to actually produce the same output using fewer inputs or produce more output using the same quantity of inputs...Then it has improved it's efficiency!

    If you're reading about this somewhere over the internet, please link me to it.
  2. Blogger illogicist posted at 4/12/2006 03:43:00 PM  
    Actually thats a very nice working definition. Surprised I havent seen it so neatly put anywhere.

    But if thats the definition we're to use, it doesnt help in answering the questions of whether efficiency a) actually is achieved in policies that are meant to enhance it; and b)is equally or more desirable than equity when it comes to macroeconomic policies.

    Neoliberal policies seem to put efficiency on a pedestal above all else.
  3. Blogger Per Your Request posted at 4/13/2006 01:50:00 PM  
    First, I have enjoyed your most recent posts.
    In regards to the IMF and World Bank, I don’t agree with their policies practices. World Bank loans are usually granted for projects that don’t directly translate into dollars (or contribute to GDP directly). For instance, building a damn in the middle of Africa may not have a direct impact to GDP of the country but it would increase the quality of life. This is why third world countries have a hard time paying off the loans. They have incurred a cost that doesn’t provide immediate revenue and the country falls deeper in debt.
    As you can see, I’m not a big fan of the World Bank or IMF, although at one time my dream job was to work for one of them.
  4. Blogger illogicist posted at 4/17/2006 03:28:00 PM  
    Thanks for your comment PYR. From what Ive read, the WB and IMF tend to impose conditions on loans that assume a western-growth model is applicable in these countries, for instance trade liberalisation, removal of protections for local industries, etc. In fact, Western civilisations are so successful now because, when they were growing, they had these protections and stuff which allowed local industry to flourish. Only after they matured were protections removed.

    This kind of thing, and others, such as privatisation of key services such as health and education, often harms the local population and only benefits a rich elite. This is my main quarrel with the WB. They do a lot of good in terms of research and that, but as a financial institution, well, they need reform I feel. Radical reforms.

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