Allocative and Productive Efficiency
6 August 2008
By Dr. Fei Deng with former NERA Senior Vice President Dr. Gregory K. Leonard
The allocation of scarce resources is a central concern of economics as well as antitrust law. The two fundamental welfare theorems of economics demonstrate that, in the absence of market imperfections, competitive outcomes and efficient outcomes are linked. Even when market imperfections exist, interventions -- by either the government or private parties -- can serve to improve efficiency. Some interventions have the potential both to increase and decrease efficiency. This chapter from Issues in Competition Law and Policy discusses the fundamental welfare theorems and the connection between efficiency and competition. The authors also describe the breakdowns that can occur with market imperfections, as well as the types of interventions that can restore efficiency. In addition, they consider the dilemma facing antitrust enforcers when a given private solution may have both efficiency-enhancing and efficiency-reducing effects.
This chapter, from Issues in Competition Law and Policy, has been reproduced with permission from the American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
