Re: Shastry on Amartya Sen

[Huzefa Mehta <hmehta@equator.com>]

A case in point is Mexico after NAFTA. As the markets opened up, people
who had quick access to the new information and markets were distinctly
positioned to take advantage of the system hence skewing the wealth
distribution even more.

I assume the equilibrium or uniformity Sastry/Sen mentions below is not
perfect equilibrium but competitive equilibrium. Free markets IMO assume
a fair accessibility to information and a certain level of uniformity in
information.

I agree however that perfect uniformity would not be desirable.

Huzefa


> From: K.S.Sastry
>     Secondly, free markets do not automatically reach a competitive
> equilibrium and thereby become Pareto efficient. There are certain
> pre-conditions to achieve a competitive equilibrium. One of these is that
> all the resource owners, all the producing firms, and all the consuming
> households have all the knowledge and information necessary to maximise the
> benefit respectively accruing to them.
> 
> MY RESPONSE: (1) This description, of market functioning in perfect
> competition where participants have perfect knowledge, is completely wrong.
> It is this belief that had led to the rise of central planning by the
> omniscient officials of the state. If one knows everything that there is to
> know, planning will indeed be the most efficient model to adopt.
> 
> (2) In reality, market functions efficiently because there is asymmetry in
> knowledge. This provides incentive to competitors to try out there
> respective models. This also provides the incentive to discover that little
> extra bit of knowledge that will give the competitive advantage. And since,
> knowledge is open-ended, every incremental improvement helps improve
> efficiency, and at the same time continuing the search for further
> improvements. Some of the authors who have dwelled at length on this issue
> include Hayek, Popper, Sowell.
> 


-- 
-----------
Huzefa Mehta
Equator Technologies Inc.,
off:   (408) 369-5436 
fax:   (408) 371-9106
email: hmehta@equator.com


----------------------------------------------------------------------------
This is a posting to India_Policy Discussion list:  debate@indiapolicy.org
Rules, Procedures, Archives:            http://www.indiapolicy.org/debate/
---------------------------------------------------------------------------