I think you’re right that in many situations where it seems like A can (at no direct cost to A) give B something B values that isn’t a Pareto improvement because A loses bargaining power. But I would expect that in most situations something closely related is true: these losses to A are generally “second-order” effects markedly smaller in size than the direct benefit to B, which means that some change of the form “A gives B the thing, and B gives A an amount of money that’s small in comparison to the benefit B just got but large in comparison to the cost A just incurred” is possible and is a Pareto improvement.
If I’m right, this doesn’t invalidate the point being made here, but perhaps it blunts it a bit: saying “X would be a Pareto improvement” isn’t quite right, but it might be a close enough approximation that it’s reasonable for people to say it.
The thing you’re talking about is called Kaldor-Hicks efficiency and I think you’re right that these situations will usually be Kaldor-Hicks improvements.
There’s some discussion of these over on reddit. I’m wary of equivocating between the two, for reasons pointed at in that comment thread: even if it would be theoretically possible to turn a Kaldor-Hicks improvement into a Pareto improvement, in practice that might be difficult.
Kaldor-Hicks means “A is worse off, B is better off, but some compensation from B to A will leave both better off than before”. That is, in some sense B is more better-off than A is worse-off. But I’m claiming something a little stronger: that in typical situations of the type described here, B is not merely more better-off but very much more better-off, so that you can reach a genuine Pareto improvement by means of a transfer that’s really small in comparison with the benefit B has received.
To me, this feels like an important distinction: it’s not just that we could get to a Pareto improvement from here, it’s that we’re almost there already.
Fair enough, that was over-eager pattern matching on my part.
I’m not sure how true the stronger claim is. In the case of the baseball card, the opportunity cost to Adam is almost as much as the price Beth is willing to pay. And that seems like it’s going to be, not universally true but common; the higher the benefit to B, the more A is capable of extracting from them, and so the higher the cost of losing that ability.
A point in favor would be that blocking a fake Pareto improvement probably has social costs that also rise with the benefit to B.
I think you’re definitely right about the baseball-card example, but it’s a rather artificial example because it depends on Beth being the only possible buyer for Adam’s card. If there are a hundred Beths all of whom would happily give Adam $100 for his card, then magically bringing one into existence and giving it to one of the Beths costs Adam only whatever incremental reduction this brings in the “market” price of the card. (While still bringing the lucky Beth $100 worth of gain.)
Of course you can make Adam’s loss be the full $100 by giving cards to all the Beths—but now the benefit to them is much more than the $100 Adam has lost.
I haven’t thought this through carefully, but it seems like the key feature here that makes your baseball-card example “work” is precisely this one-to-one relation. I don’t know how common that is. It seems like something of the sort is the case with the Liverpool Street platform, or at least would be in some Libertarian World where everyone’s expectation was that if a platform’s inaccessible to disabled people then disabled people should band together and pay for it to be made accessible. Here in the real world that isn’t quite the expectation, of course, which is more or less the point in your last paragraph.
Ah, I forgot that “the case of the baseball card” is actually two cases. I think you’re right about the case where Beth gets given a new card; if there are lots of Beths, there’s a large net utility gain. But I don’t think that works in the case where Adam’s card gets given to one of the Beths; the loss to him is still close to the market value of the card.
It seems plausibly true if we think only of the cases where… something like “A loses power because B gets something they want, but A’s circumstances ignoring B are unchanged”. But I don’t immediately trust that to be a sensible set of cases to think about, in more complicated scenarios.
Assuming the money transfer actually takes place, this sounds like a description of gains from trade; the “no pareto improvement” phrasing is that when actually making the trade, you lose the option of making the trade—which is of greater than or equal value than the trade itself if the offer never expires. One avenue to get actual Pareto improvements is then to create or extend opportunities for trade.
If the money transfer doesn’t actually take place: I agree that Kaldor-Hicks improvements and Pareto improvements shouldn’t be conflated. It takes social technology to turn one into the other.
I think you’re right that in many situations where it seems like A can (at no direct cost to A) give B something B values that isn’t a Pareto improvement because A loses bargaining power. But I would expect that in most situations something closely related is true: these losses to A are generally “second-order” effects markedly smaller in size than the direct benefit to B, which means that some change of the form “A gives B the thing, and B gives A an amount of money that’s small in comparison to the benefit B just got but large in comparison to the cost A just incurred” is possible and is a Pareto improvement.
If I’m right, this doesn’t invalidate the point being made here, but perhaps it blunts it a bit: saying “X would be a Pareto improvement” isn’t quite right, but it might be a close enough approximation that it’s reasonable for people to say it.
The thing you’re talking about is called Kaldor-Hicks efficiency and I think you’re right that these situations will usually be Kaldor-Hicks improvements.
There’s some discussion of these over on reddit. I’m wary of equivocating between the two, for reasons pointed at in that comment thread: even if it would be theoretically possible to turn a Kaldor-Hicks improvement into a Pareto improvement, in practice that might be difficult.
Kaldor-Hicks means “A is worse off, B is better off, but some compensation from B to A will leave both better off than before”. That is, in some sense B is more better-off than A is worse-off. But I’m claiming something a little stronger: that in typical situations of the type described here, B is not merely more better-off but very much more better-off, so that you can reach a genuine Pareto improvement by means of a transfer that’s really small in comparison with the benefit B has received.
To me, this feels like an important distinction: it’s not just that we could get to a Pareto improvement from here, it’s that we’re almost there already.
Fair enough, that was over-eager pattern matching on my part.
I’m not sure how true the stronger claim is. In the case of the baseball card, the opportunity cost to Adam is almost as much as the price Beth is willing to pay. And that seems like it’s going to be, not universally true but common; the higher the benefit to B, the more A is capable of extracting from them, and so the higher the cost of losing that ability.
A point in favor would be that blocking a fake Pareto improvement probably has social costs that also rise with the benefit to B.
I think you’re definitely right about the baseball-card example, but it’s a rather artificial example because it depends on Beth being the only possible buyer for Adam’s card. If there are a hundred Beths all of whom would happily give Adam $100 for his card, then magically bringing one into existence and giving it to one of the Beths costs Adam only whatever incremental reduction this brings in the “market” price of the card. (While still bringing the lucky Beth $100 worth of gain.)
Of course you can make Adam’s loss be the full $100 by giving cards to all the Beths—but now the benefit to them is much more than the $100 Adam has lost.
I haven’t thought this through carefully, but it seems like the key feature here that makes your baseball-card example “work” is precisely this one-to-one relation. I don’t know how common that is. It seems like something of the sort is the case with the Liverpool Street platform, or at least would be in some Libertarian World where everyone’s expectation was that if a platform’s inaccessible to disabled people then disabled people should band together and pay for it to be made accessible. Here in the real world that isn’t quite the expectation, of course, which is more or less the point in your last paragraph.
Ah, I forgot that “the case of the baseball card” is actually two cases. I think you’re right about the case where Beth gets given a new card; if there are lots of Beths, there’s a large net utility gain. But I don’t think that works in the case where Adam’s card gets given to one of the Beths; the loss to him is still close to the market value of the card.
It seems plausibly true if we think only of the cases where… something like “A loses power because B gets something they want, but A’s circumstances ignoring B are unchanged”. But I don’t immediately trust that to be a sensible set of cases to think about, in more complicated scenarios.
Assuming the money transfer actually takes place, this sounds like a description of gains from trade; the “no pareto improvement” phrasing is that when actually making the trade, you lose the option of making the trade—which is of greater than or equal value than the trade itself if the offer never expires. One avenue to get actual Pareto improvements is then to create or extend opportunities for trade.
If the money transfer doesn’t actually take place: I agree that Kaldor-Hicks improvements and Pareto improvements shouldn’t be conflated. It takes social technology to turn one into the other.