Peng Yam Koh
Peng Yam Koh 1
Some may protest, as a quasiconcave social welfare function values equality more than inequality. In any case, it is the author’s viewpoint that the degree of curvature can be calibrated to the views of the society. As a simple piece of common-sense, the extreme case of full inequality where one individual gets all the allocations is obviously undesired. This suggests some intrinsic level of desired equality (or equivalently, reduction in inequality) 2 There is a whole literature on the role of beliefs affecting the outcomes of economic systems. Schelling (1960) introduced the concept of the focal point. Shell (1977) generalized the intuition further to include the case of incomplete markets. Very loosely, think of beliefs as the uncertainty that is not determined in the economic system, but which affects the outcomes. 3 His key insight is that some types of monopoly are essentially, costly to maintain and transfer, especially if resources are diverted away in the struggle for market power.
Peng Yam Koh
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Very loosely, the claim that such social entrepreneurial organizations are the best outcomes that can be achieved is justified by the sense that the welfare of the borrowers is greater in the presence of these organizations, as the cost of borrowing is lower than the traditional moneylenders and the formal institutions; the welfare of the organizations is also larger than if they had not chosen to participate (presumably, there is no lack of outside opportunities for the funds that they are holding with the financial markets available). It would be interesting to see if this class of mechanisms is unique. 5 There is a second reason for inefficiency as the fear of default frequently leads to amount of funds being loaned out that are less than optimal. This could be problematic in the long run. Intuitively, the no-default constraint is more restrictive, the more risk-loving the borrower is. 6 This may sound controversial, but being a social science there is always the influence of the person’s ideologies on the stands that they propose. The Chicago school’s insistence of free-market policy stands firm even in the face of the current crisis. For a good example, see Cochrane. On the other end of the spectrum, names such as Stiglitz comes to mind for their stance on interventionalism. 7 See Akerlof (1970). 8 The disagreement is not whether such tools exist, but whether the distortion on net is actually smaller than the problems it seeks to address. As will be discussed later, there are intuitive reasons to believe why this is likely to be so. 9 The Lakota fund was established with the aim of transplanting a similar institutional framework to that of the Grameen Bank. Pickering and Mushinki (2001) examines the reasons for its failure which mainly has to do with cultural reasons.
Global Initiatives Symposium in Taiwan 2009
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Those who are not convinced by this argument can refer to Shapiro and Sitglitz (1984). It was proven that if the workers do not own the firms, then the issue of equity and welfare cannot be separated, contrary to what is suggested by the well-known fundamental welfare theorems. 11 An inverted U-shape curve is found, consistent with the Kuznet’s (1955) hypothesis. To be fair, current methods of cross-sectional regression may not capture structural differences across countries; this point is made very clearly in Banerjee and Duflo (2003). The seemingly contradictory relationship for the upward sloping part of the Kuznet’s curve can be rationalized if one thinks of it as the case whereby the inequality perpetuates due to the small fraction of the population that can undertake sufficiently large loans to undergo production and investment which leads to greater wealth accumulation for these groups. 12 Persson and Tabellini (1994). 13 Koh (1993), Koh (1994) and Koh (2005). The points were made a summary of his results in these 3 papers. His papers employed the project selection framework to analyze optimal decision-making structures. Refer to Stiglitz(1999) for an introduction to this approach.
Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship
Peng Yam Koh
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Of course, in this case the beliefs actually improve the pareto efficiency of the economy, meaning that the original economy was inefficient in the first place. This is very intuitive in the absence of perfect information.
Global Initiatives Symposium in Taiwan 2009
Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship
Peng Yam Koh
Global Initiatives Symposium in Taiwan 2009