2.5.2 The standard viewpoint:
when is it less valid?
In the context of imperfect markets, the unambiguous
result that redistribution is certainly costly does not hold.
A redistributive policy might produce efficiency gains
and efficiency losses that ought to be carefully and
pragmatically evaluated. Whenever the former exceeds
the latter, redistribution should be carried on. This does not
mean that redistribution is inexpensive under imperfect
markets but only that the efficiency gains attainable by
means of income redistribution more than offset the
efficiency costs of redistribution. Whether to undertake
redistribution or not depends on the kind and relevance
of market imperfection, so that any judgement should be
made on a case-by-case basis. This is not the end of the
story though. If after careful evaluation redistribution is
found to cause an efficiency loss, the case for redistribution
might still be made. If the society is ready to sacrifice
some efficiency to achieve a more equitable distribution
of resources, this would be an entirely defendable
strategy from an economic perspective. The only concern
of neoclassical economists will be how to achieve this
result of a more equitable distribution of resources at
the minimum cost.
Summing up, the idea of the trade-off between equality
and efficiency is likely to have been overemphasized. In
reality, neoclassical economics indicates that redistribution
does have a price but that sometimes this price is
worth paying and sometimes not. If there is a political
decision to pay the price, neoclassical economists will