Wasting Away in Paretoville: A Reply to Cass Sunstein

by LISA HEINZERLING & FRANK ACKERMAN

In his article in this issue, Professor Sunstein asks a provocative series of questions. What are the limits of the traditional approaches to welfare economics, which focus on the Pareto optimality of market outcomes and the use of willingness to pay (WTP) as the measure of the value of government regulation? What does equity, an inescapable concern in an unequal world, have to do with these market-oriented theoretical constructs? Does the recent empirical literature on subjective well-being, and on psychological anomalies, challenge our understanding of welfare?

The questions are excellent; the answers are less satisfying. While presenting selected useful pieces of a solution, Sunstein repeatedly falls short of assembling them into a coherent alternative to traditional welfare economics. If, as Emerson put it, a foolish consistency is the hobgoblin of little minds, then there are ample traces of a large mind at work here. Our comments, which are organized as responses to his four principal sections, generally argue for a more complete departure from the conventional economic theories which Sunstein (too gently and too partially) criticizes. We offer the comments in the spirit of Sunstein’s own libertarian paternalism: we will not force him to accept the logical consequences of his own convictions, but we will try to nudge him in that direction.

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