A Stanford GSB economist argues that well-designed markets can address inequality while remaining competitive
If traditional economics can be boiled down to one idea, it’s this: Competitive markets, by maximizing supplier and consumer surplus, are the most efficient way to distribute goods.
“But then, all of a sudden, economists make this jump from the idea that markets maximize surplus to the idea that they maximize total welfare,” says Mohammad Akbarpour, an associate professor of economics at Stanford Graduate School of Business. He has doubts about that equivalence, as it’s built on the assumption that money has the same value to everyone: effectively, that $100 means the same thing to Bill Gates as it does to a family on the brink of eviction.
“What if we drop that assumption?” Akbarpour asks.
This piece originally appeared in Stanford Business Insights from Stanford Graduate School of Business. To receive business ideas and insights from Stanford GSB click here: (To sign up: https://www.gsb.stanford.edu/insights/about/emails)