Living Economics

Efficient but not Fair?
Efficiency may conflict with fairness because it is often difficult to re-distribute the gain from greater efficiency.

The number of checkout stations that are open in many stores with multiple checkout stations depends on customer traffic. When traffic becomes heavy, a few more stations are opened up. Usually, it is those customers at the end of the long lines who are in better positions to move to the new shorter lines.

Adding more lines reduces the average waiting time of customers. In a sense, it increases efficiency. But the benefit from this increased efficiency is not fairly distributed. Those at the end of long lines who have waited the shortest time disproportionately benefit from the short lines. They are favored because of their strategic locations. They can move easily from the back of the long lines to the beginning of the shorter lines because there are fewer obstructions to their movements. There will be utter chaos if the store manager insists that the customer next in line to checkout in the long lines go to the head of the line in the newly opened stations. The customers next in line to checkout in the long lines are the ones who have waited the longest for their turns. Fairness dictates that they should be served first in the new shorter lines. But they are usually stuck in the narrow checkout lanes boxed in by the display shelves.

Many economic issues involve conflict between efficiency and fairness. For example, free trade is widely believed by economists to be good for efficiency based on the principle of comparative advantage. Efficiency in this case means greater total output (i.e., a bigger economic pie). But free trade also means that the less cost efficient domestic industries will be eliminated by cheaper imports. Although the gain for the economy exceeds the loss of the less competitive industries, these benefits accrue mostly to those employed in the more efficient domestic industries.

Conceptually, it makes sense to divert some of the gain from the gainers to compensate the losers. But politically and administratively, trade adjustment assistance has been difficult to implement. The issues involve the scope, the length, and the amount of compensation.

Needless to say, those who gain are less than eager to share their fortune with those who lose. But politically, unless the gain is somehow shared, those who lose might sabotage the gain by blocking further (or reverse the) liberalization of trade.

Note:
  1. K. K. Fung is professor of economics at the University of Memphis.
  2. K. K. Fung is professor of economics at the University of Memphis.
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