25 January 2011

Who gets the surplus benefit?

The logic of perfectly competitive markets is that there's no such thing as positive sum. 
If an outcome leads to positive sum for both traders, then it means someone wasn't taking advantage of all the possibilities on the table. Positive sum means, in some sense, that there's been a market failure. The perfect price should capture all the benefit for the more efficient player. When all the benefit fails to go to the superior player it is a symptom of a laxness in the market mechanism. 
Society, so the argument must go, should strive to assign as much of the benefit as possible to the player with the competitive advantage. This allocation of surplus benefit through the price mechanism mirrors the apportionment of surplus benefit through the Bible's cultural mechanism and the will and claims of the Old One. 
The question is who gets the surplus benefit and how ought we to make those determinations? The market says give it to the player with the competitive advantage; the Bible says give it to the one who has done the most to deserve it. The question becomes interesting when competitive advantage deviates from deservedness. 

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