To be Fair

I was recently wondering to myself the fairness of the business world and economics. I think I may be thinking about econ too much.

There is a connection between equity and economic efficiency. In terms of money, efficiency would come in the form of value-based pricing of goods. The greater you wanted a good, the more you would pay for it. This, ideally, would be in disregard for all other things, such as race or gender. This is a blind fair, but it is efficient. However, there are some inefficiencies that are created purposefully to be more fair. This relies on the basis that all people are equally deserving of goods and services, in terms of both equal ability to buy (fair distribution of wealth) and reward for selling (fair compensation for equal work), rather then fair in terms of the “blind economic man.” There are inefficiencies that happen “naturally,” or without government or institutional mandates.

One example of the creation of inefficiency in the market is patents. If a pharmaceutical company creates a drug and obtains a patent on that drug, the government will outlaw copying of that drug by other companies. This is an effort to encourage companies to develop drugs and allow them to reap the rewards for the research done to create it. This is fair for the drug company, but it implies that the price of the drug will be higher due to the monopolistic nature (which is a market failure) the patent created, making it unfair for the consumer. The government then allows companies to copy the drug after a certain amount of years, therefore returning the market to a competitive, efficient and fair market.

The welfare system is an example of a process where distribution inequality is changed to be fairer to less wealthy people. This is a large market inefficiency, however does make the distribution of wealth more fair, (or equal).