Koopmans (1951). Efficient Allocation of Resources
1. What are the problems of welfare economics according to Koopmans?
Koopmans states; ‘The first group is concerned with the most efficient
allocation of resources in production, the second with the most desirable
distribution of commodities or income.’ Blz. 455
Koopmans however thinks these areas are strongly related through the
reward for human effort, its quantity and quality, and cannot be separated.
He thinks that by focusing on the first point, you will solve both problems.
2. Which position does Koopmans take in the Calculation Debate?
The Calculation Debate: whether the satisfying conditions of a socialist
economy can be explicitly calculated and especially if this is necessary.
Koopmans thinks (explicit) calculation is not needed to analyse (or use) a
socialistic economy. ‘Even in the capitalistic enterprise economy there are
many sectors where the guideposts of a competitive market are lacking
and explicit analysis of the allocation problem is needed.’ Blz. 457
Calculation Debate: whether a capitalistic economy or a socialist economy
would be better.
3. How does Koopmans define ‘efficiency’?
‘An attainable set of commodity flows, as well as any set of activity levels
giving rise to it, is called efficient if there is no other attainable set of
commodity flows in which all flows are at least as large as the
corresponding flows in the original set, while at least one is actually
larger.’ Blz. 460
This means the combination of inputs and activities yields the largest
output.
4. Explain the two allocation models that Koopmans is comparing.
1st model: ‘a set of positive prices on final commodities is prescribed,
either administratively by some central authority or as market prices
reflecting a balance of preferences of consumers weighted by the income
distribution.’ And ‘Any activity yielding a negative profit is to be
contracted. Any activity yielding a zero profit is to be maintained at a
constant level. Any activity yielding a positive profit is to be expanded, if
necessary by bidding up prices of its input commodities.’ Blz. 463
This means prices are either set in a competitive market or by the
government.
2nd model: managers try to work efficiently by allocating sets of activity
levels and its profits. (managers set the prices of the outputs).
5. What is meant by the ‘decentralization of decisions’?
There is not a single entity that makes all economic decisions (in a socialist
or communism system). This means all managers can decide on their own
for the sets of activity levels, the prices of the outputs, etc. only keeping in
mind they want to be profitable and will aim for the most efficient option.
Leontief (1953). The input-output approach in economic analysis
1. What are the problems of welfare economics according to Koopmans?
Koopmans states; ‘The first group is concerned with the most efficient
allocation of resources in production, the second with the most desirable
distribution of commodities or income.’ Blz. 455
Koopmans however thinks these areas are strongly related through the
reward for human effort, its quantity and quality, and cannot be separated.
He thinks that by focusing on the first point, you will solve both problems.
2. Which position does Koopmans take in the Calculation Debate?
The Calculation Debate: whether the satisfying conditions of a socialist
economy can be explicitly calculated and especially if this is necessary.
Koopmans thinks (explicit) calculation is not needed to analyse (or use) a
socialistic economy. ‘Even in the capitalistic enterprise economy there are
many sectors where the guideposts of a competitive market are lacking
and explicit analysis of the allocation problem is needed.’ Blz. 457
Calculation Debate: whether a capitalistic economy or a socialist economy
would be better.
3. How does Koopmans define ‘efficiency’?
‘An attainable set of commodity flows, as well as any set of activity levels
giving rise to it, is called efficient if there is no other attainable set of
commodity flows in which all flows are at least as large as the
corresponding flows in the original set, while at least one is actually
larger.’ Blz. 460
This means the combination of inputs and activities yields the largest
output.
4. Explain the two allocation models that Koopmans is comparing.
1st model: ‘a set of positive prices on final commodities is prescribed,
either administratively by some central authority or as market prices
reflecting a balance of preferences of consumers weighted by the income
distribution.’ And ‘Any activity yielding a negative profit is to be
contracted. Any activity yielding a zero profit is to be maintained at a
constant level. Any activity yielding a positive profit is to be expanded, if
necessary by bidding up prices of its input commodities.’ Blz. 463
This means prices are either set in a competitive market or by the
government.
2nd model: managers try to work efficiently by allocating sets of activity
levels and its profits. (managers set the prices of the outputs).
5. What is meant by the ‘decentralization of decisions’?
There is not a single entity that makes all economic decisions (in a socialist
or communism system). This means all managers can decide on their own
for the sets of activity levels, the prices of the outputs, etc. only keeping in
mind they want to be profitable and will aim for the most efficient option.
Leontief (1953). The input-output approach in economic analysis
