The Concept of Economic Efficiency 49 



Income Distribution and Full Employment 



By taking account of qualifications relevant to the water field, 

 our model can be modified to serve as an appropriate frame of 

 reference for appraising the comparative efficiency of alternatives 

 among approaches to the development of multiple purpose river 

 projects. A few loose ends must be gathered in, however, before 

 we turn to specific problems. 



One of the questions we have avoided, in specifying the condi- 

 tions for economic efficiency, concerns income distribution. Income 

 in the model originated as remuneration for factor services. 

 Changes in relative rewards to factors among alternative uses were 

 the means by which resources would be constantly rechanneled into 

 the most productive alternative employments consistent with 

 dynamic changes over time in consumers' preferences, improvement 

 in technology, and the growth and distribution of income. In the 

 competitive model, in short, factor remunerations allocated 

 resources efficiently, and these rewards for factor services resulted 

 in some unspecified distribution of income which was also 

 implicitly "efficient." 



In a somewhat different perspective, the distribution of owner- 

 ship of resources could result in great extremes in the distribution 

 of income and wealth. Where these extremes exist, it has been 

 difficult to give expression to some of the fundamental tenets of a 

 democratic society. Among these are equal opportunity for influ- 

 encing political decisions, equal treatment before the law, and 

 similar ideals of our society. Since the market mechanism does not 

 allocate resources and distribute products with uniform impar- 

 tiality, irrespective of the distribution of income, individuals with 

 unequal personal fortunes have unequal influence on the alloca- 

 tion of resources. Conceivably, a conflict between efficiency — given 

 the prevailing distribution of resource ownership — and "higher 

 criteria" may result. 



While we do not ignore the reality of this problem, it does not 

 lie within the scope of the present study. We take for granted 

 that the political, judicial, and other social processes in a democ- 

 racy tend to adjudicate disputes involving the distribution of the 

 national income. ^^ How adequately this is being accomplished in 



"For an analysis along diflerent lines, see Anthony Downs, An Econotnic 

 Theory of Government Decision-Making in a Democracy. Technical Report No. 

 32 (Stanford: Department of Economics, Stanford University, 1956). 



