Shastry on Amartya Sen & Market Efficiency.

["Vinay Chandekar" <vinay@asiaaccess.net.th>]

" because as has been pointed out above, market is efficient, not
because of perfect knowledge and competion, but precisely because there
is imperfect knowledge which provides the incentive to compete."

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IMO the whole emphasis of Sen has been on pointing out why markets
do not function as well as they are expected to do.

Since the function of markets is to Distribute, an efficient market
is a necessity. But is it efficient ?

It is true that market-knowledge is asymmetrical and this is the
Major reason why market are Allowed to remain in existence because
they serve the purpose of some of the dominant participants - the
market Manipulators are able to Beat the rational parti-cipant most
of the time.

Competition is OK if it is fair. But what happens in the practical
world is that the dominant players seek control of the field by
employing Tricks of Trade which the normal participant is unaware
of. This includes showing the competing product to be inferior
whether this is justified by facts or not. An example of this is the
"detergent war" in Europe of a few years ago. Another example could
be (take you to see movies - good one !) the movie based on biblical
story of Ben Hur ! The famous chariot race "competition"
was OK, if  the outcome was to be determined on the strength and
stamina of the horses and the horsemanship of the charioteer. But
Messala (!) employs cutting devices in the wheels of his chariot
which if allowed to come into contact with the chariot of
"Charleston Heston" would have not only wrecked his chariot but may
have killed him too. Such competition is to be discouraged but is
happening all the time because we are not able to Supervise the
markets.

The second richest man in the World, Warren Buffet, say it is
"great" for him that most of the world thinks that the (stock)
market is efficient and rational. (He takes advantage of this
because of his deeper understanding of the fact that stock market
knowledge is Asymmetrical.)  South East Asia shows markets to be
almost totally irrational. And so does the history of Panics in the
stock market which is supposed to be a barometer of economy.

I suppose the ideal of human efforts is to not to confirm or deny
the supremacy of markets; it is to ensure equitable distribution of
the fruits of civilization. Therefore, Sen's efforts in pointing out
why Markets do not function well is a welcome effort to point our
endeavours in the right direction.

Whether markets are functioning well or not is simple to judge
(though many would like to preserve the gravity). Is the market
achieving its primary function of making available the consumables
to all the particiapants ? If it doing this it is a Fair market, if
it is not, then it is not. And if it not fair then its tail has to
be Tweaked and Twisted till it behaves in the right way irrespective
of how many economists have justified it in the Past. Because, Past
is past - we have to devise systems for The Future !


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