PUTTING THE VALUE OF FREEDOM INTO ECONOMIC ANALYSIS
01 Jul 2018
One way of valuing freedom of expression is to say that a free market for ideas will lead to the truth, which is essential for selecting wise policies. But freedom of expression is also valuable even if the marketplace for ideas fails to select good outcomes.
These are some of the careful distinctions made in a new study by Itai Sher, published in the July 2018 issue of the Economic Journal. His research proposes a way of incorporating freedom that is instrumentally and/or inherently valuable into economic analysis. This makes it possible to explore the trade-off between good outcomes and the rights that people have to make choices within their lives.
While economists have had a deep and longstanding interest in freedom, the evaluation of social institutions in terms of the freedom they provide has not yet been systematically integrated into mainstream economics and no consensus exists about how to think about the issue formally.
Greater consensus on this could potentially place freedom on a more equal footing with standard economic notions such as efficiency and welfare and so facilitate a discussion among economists about trade-offs between freedom and other social values. This study proposes a way of incorporating freedom into economic analysis.
Freedom can be valuable for two reasons:
• It may be instrumentally valuable: having more choices allows one to select a more desirable alternative.
• It may be inherently valuable: it is important to be able to have autonomous control of certain basic aspects of one’s life and to have certain corresponding rights to do so.
The instrumental value of freedom is fairly easy to incorporate into standard economic analysis, but the inherent value is not. That is where this study makes an advance. It proposes a way to model the latter, and moreover to model the trade-offs between the two sources of the value of freedom.
Think, for example, about basic liberties, such as the freedom of expression. An instrumental justification for such freedoms is that a free market for ideas will lead to the truth, which is essential for selecting wise policies. An inherent justification treats freedom of expression as an end in itself. On the latter view, freedom of expression is valuable even if the marketplace for ideas fails to select good outcomes.
Economics studies trade-offs, such as those between risk and return, inflation and unemployment, and growth and the environment. This study focuses on a different kind of trade-off: the trade-off between good outcomes and the rights that people have to make choices within their lives.
Should we, for example, prohibit gambling or tax soft drinks? Such a prohibition or tax may prevent suffering or improve health, but may also interfere with liberty.
Follow-up work has applied these ideas to voting institutions. There is a famous result in voting theory, known as Arrow’s impossibility theorem, which says that it is impossible to construct a voting system with certain desirable properties.
We can also think about voting institutions in terms of the allocation of collective control over public decisions. It is inherently valuable that people should collectively have such control.
Despite the problems raised by Arrow, we can still ask: which voting institutions maximise collective control? The theory developed in this study can help to answer that question.
‘Evaluating Allocations of Freedom’ by Itai Sher is published in the July 2018 issue of the Economic Journal.