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ON ETHICS & ECONOMIC AMARTYA SEN On Ethics and Economics Copyrighted material The Royer Lectures Series Editor: John M. Letiche University of California, Berkeley On Ethics and Economics Amartya Sen Blackwell Publishing Copyrighted material ©1987, 1988 by Amartya Sen BLACKWELL PUBLISHING 350 Main Street, Malden, MA 02148-5020, USA 108 Cowley Road, Oxford 0X4 1JF, UK 550 Swanston Street, Carlton., Victoria 3053, Australia All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs, and Patents Act 1988, without the prior permission of the publisher. First published 1987 First published in paperback 1988 Reprinted 1990, 1991, 1992, 1994, 1995, 1996, 1997, 1998, 1999 (twice), 2002, 2003, 2004 Library of Congress Cataloging- in-Publication Data - Sen, Amartya On ethics and economics. 1. Economics—Moral and ethical aspects L 174'.4 HB72 ISBN 0-631-16401 -4 (pbk) A catalogue record for this title is available from the British Library. Set in 11 on 13 pt Times by Columns of Reading Printed arid bound in the United Kingdom by Athenæum Press Ltd, Gateshead, Tyne & Wear The publisher's policy is to use permanent paper from mills that operate a. sustainable forestry policy, and which has been manufactured from pulp processed using acid-free and elementary chlorine-free practices. Furthermore, the publisher ensures that the text paper and cover board used have met acceptable environmental accreditation standards. For further information on Blackwell Publishing, visit our website: http://www.blackwellpublishing.com To Ken Arrow Copyrighted material Contents Foreword by John M. Letiche ix(cid:9) (cid:9)(cid:9)(cid:9)(cid:9) Preface xv(cid:9) (cid:9)(cid:9)(cid:9)(cid:9)(cid:9) 1 Economic Behaviour and Moral Sentiments (cid:9) 1 Two Origins 2 (cid:9) Achievements and Weakness (cid:9) 7 Economic Behaviour and Rationality (cid:9) 10 Rationality as Consistency (cid:9) 12 Self-interest and Rational Behaviour (cid:9) 15 Adam Smith and Self-interest (cid:9) 22 2 Economic Judgements and Moral Philosophy (cid:9) 29 Interpersonal Comparisons of Utility (cid:9) 30 Pareto Optimality and Economic Efficiency (cid:9) 31 Utility, Pareto Optimality and Welfarism (cid:9) 38 Well-being and Agency (cid:9) 40 Valuing and Value (cid:9) 41 Agency and Well-being: Distinction and Interdependence (cid:9) 43 Utility and Well-being (cid:9) 45 Achievements, Freedom and Rights (cid:9) 47 Self-interest and Welfare Economics (cid:9) 51 Rights and Freedom (cid:9) 56 3 Freedom and Consequences (cid:9) 58 Well-being, Agency and Freedom (cid:9) 58 Plurality and Evaluation (cid:9) 61 Incompleteness and Overcompleteness (cid:9) 65 Copyrighted material Contents Conflicts and Impasse (cid:9) 68 Rights and Consequence (cid:9) 70 Consequential Assessment and Deontology (cid:9) 74 Ethics and Economics (cid:9) 78 Welfare, Goals and Choices (cid:9) 80 Conduct, Ethics and Economics (cid:9) 88 References (cid:9) 90 Author index (cid:9) 123 Subject index (cid:9) 129 Foreword This small book is a 'treasure-chest' for economists, philosophers and political scientists interested in the relations between contemporary economics and moral philosophy. Written in a clear. crisp and stimulating style, Professor Amartya Sen provides more than a terse synthesis of the relevant literature on ethics and economics. In the sense of being substantially new, he shows the contributions that general equilibrium economics can make to the study of moral philosophy; the contributions that moral philosophy and welfare economics can make to mainstream economics; and the harm that the misuse of the assumption of self-interested behaviour has done to the quality of economic analysis. Sen demonstrates that there has occurred a serious distancing between economics and ethics which has brought about one of the major deficiencies of contemporary economic theory. As he persuasively argues. since the actual behaviour of human beings is affected by ethical considerations, and influencing human conduct is a central aspect of ethics, welfare-economic considerations must be allowed to have some impact on actual behaviour and, accordingly, must be relevant for modern logistic economics. But while logistic economics has had an . influence on welfare economics, Sen points out that welfare economics has had virtually n.o influence on logistic economics. He shows that both the ethics-related origins and the logistic-based origins of economics have cogency of their Copyrighted material Foreword own. The logistic approach of modern economics, he emphasizes, has often been extremely productive, providing better understanding of the nature of social interdependence and illuminating practical problems precisely because of extensive use of the logistic approach. The development of formal 'general equilibrium theory' is a case in point, and Sen illustrates its application to critical problems of hunger and famine. The foundation of Seri's arguments rests, however, in the view that economics, as it has emerged, can be made more productive by paying greater and more explicit attention to the ethical considerations that shape human behaviour and judgment. With illuminating brevity, he analyses certain departures from standard behavioural assumptions of economic theory that may arise from distinct ethical considerations. They may arise from intrinsic evaluations and from instrumental ones, either individually or from the group. Sen draws attention to the various causes from which they may arise, causes that give credence to the instrumental role of contemporary social behaviour. Such behaviour may go against each person's apparently dominant strategy, but group-rationality conditions of a specified type often influence actual behaviour without involving any defect in people's knowledge. In consequence, Sen discusses the ways in which welfare economics can be enriched by paying more attention to ethics; how descriptive economics, prognosis, and policy can be improved by making more room for welfare economics in the determination of individual and group behaviour; and how the study of ethics can, in turn, benefit from a closer contact with economics. Understandably, though Sen is critical of economics as it stands, he does not think that the problems raised have been adequately dealt with in the ethical literature. Therefore, it is not a problem of merely incorporating the

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In this elegant critique, Amartya Sen argues that welfare economics can be enriched by paying more explicit attention to ethics, and that modern ethical studies can also benefit from a closer contact with economies. He argues further that even predictive and descriptive economics can be helped by ma