Resource Allocation Decisions: When Do We Sacrifice Efficiency in the Name of Equity?
Equity, or the idea that one should be compensated according to one’s respective contribution, is a fundamental principle for resource allocation. People tend to endorse equity in a wide range of contexts, from interpersonal relationships to public policy. However, at times, equity might come at the expense of efficiency. What do people do when they must waste resources to maintain equity? In this chapter, we adopt a behavioral perspective on such equity–efficiency trade-offs, reviewing the relevant findings from the social psychology, judgment and decision-making and behavioral economics literature. We show that whereas allocators will often choose to waste in the name of equity, this is not necessarily the case. We review various psychological aspects that affect the allocators’ decision.
KeywordsEquity Efficiency Resource allocation Decision-making Partiality Responsibility Fairness
- Adams, J. S. (1965). Inequity in social exchange. In L. Berkowitz (Ed.), Advances in experimental social psychology (Vol. 2, pp. 267–299). New York, NY: Academic Press.Google Scholar
- Bagwell, L. S., & Bernheim, B. D. (1996). Veblen effects in a theory of conspicuous consumption. The American Economic Review, 86(3), 349–373.Google Scholar
- Ballard, C. L. (1988). The marginal efficiency cost of redistribution. The American Economic Review, 78(5), 1019–1033.Google Scholar
- Bar-Hillel, M., & Yaari, M. (1993). Judgments of distributive justice. In B. A. Mellers & J. Baron (Eds.), Psychological perspectives on justice: Theory and applications (pp. 56–84). New York, NY: Cambridge University Press.Google Scholar
- Baumeister, R. (1998). The self. In D. T. Gilbert, S. T. Fiske, & G. Lindzey (Eds.), The handbook of social psychology (Vol. 1, 4th ed., pp. 680–740). Boston, MA: McGraw-Hill.Google Scholar
- Choshen-Hillel, S., & Yaniv, I. (2012). Social preferences shaped by conflicting motives: When enhancing social welfare creates unfavorable comparisons for the self. Judgment and Decision making, 7(5), 618–627.Google Scholar
- Cialdini, R. B., & Trost, M. R. (1998). Social influence: Social norms, conformity, and compliance. In D. T. Gilbert, S. T. Fiske, & G. Lindzey (Eds.), The handbook of social psychology (Vol. 2, 4th ed., pp. 151–192). Boston, MA: McGraw-Hill.Google Scholar
- Elster, J. (1993). Justice and the allocation of scarce resources. In B. A. Mellers & J. Baron (Eds.), Psychological perspectives on justice: Theory and applications (pp. 56–84). New York, NY: Cambridge University Press.Google Scholar
- Goffman, E. (1959). The presentation of self in everyday life. Garden City, NY: Double Day.Google Scholar
- Okun, A. M. (1975). Equality and efficiency: The big tradeoff. Washington, DC: Brookings Institution Press.Google Scholar