ABSTRACT
Equity and economics oftenmake for awkward company. It seems that economists talk quite often about equity, but there is little agreement about what exactly is being talked about or whether it should concern economists at all. The dictionary defines “equity” as “justice” or “fairness”—concepts one is more likely to come across in political or legal literature than in the calculus-filled tomes of economics. After all, in the world of profit-maximizing firms and utilitymaximizing consumers, equity has no place: whether economic output is owned by one or equally shared, Pareto efficient allocations and equilibrium prices will be determined. Nothing in general equilibrium theory requires that all actors in the economy should have someminimum level of consumption or that the distribution of goods should be equitable. However, despite the mechanical neatness and analytical rigor of this “equity-less” economy, economists have grappled with the question of equity, from Bentham’s (1781) “greatest possible quantity of happiness” to Marxian (1867) socialism, and Sen’s (1993) capabilities approach. So, what exactly do we mean by “equity?”
