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Measuring Opportunity: Toward a Contractarian Measure of Individual Interest*

  • Robert Sugden (a1)

Extract

Liberals have often been attracted by contractarian modes of argument— and with good reason. Any system of social organization requires that some constraints be imposed on individuals' freedom of action; it is a central problem for any liberal political theory to show which constraints can be justified, and which cannot. A contractarian justification works by showing that the constraints in question can be understood as if they were the product of an agreement, voluntarily entered into by every member of society. Thus, no one is required to give up his freedom for someone else's benefit, or in the pursuit of someone else's conception of the social good.

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1 Buchanan, James M., The Limits of Liberty (Chicago: University of Chicago Press, 1975); Gauthier, David, Morals by Agreement (Oxford: Oxford University Press, 1986).

2 Hume, David, A Treatise of Human Nature (Oxford: Clarendon Press, 1978), p. 497, first published 1740.

3 von Hayek, Friedrich A., Law, Legislation, and Liberty, vol. 2: The Mirage of Social Justice (Chicago: University of Chicago Press, 1976), pp. 23.

4 I offer a general reading of Hayek's social theory as implicit contractarianism in Sugden, Robert, “Normative Judgments and Spontaneous Order: The Contractarian Element in Hayek's Thought,” Constitutional Political Economy, vol. 4 (1993), pp. 393424.

5 In a parallel paper, I review some of the main proposals that have been made up to now: see Sugden, Robert, “The Metric of Opportunity,” Economics and Philosophy (forthcoming 1998).

6 Harsanyi, John C., “Morality and the Theory of Rational Behaviour,” in Utilitarianism and Beyond, ed. Sen, Amartya and Williams, Bernard (Cambridge: Cambridge University Press, 1982).

7 Arrow, Kenneth J., “Some Ordinalist-Utilitarian Notes on Rawls's Theory of Justice,” journal of Philosophy, vol. 7 (1973), pp. 245–63.

8 Bentham, Jeremy, An Introduction to the Principles of Morals and Legislation (London: Athlone Press, 1970), ch. 1, first published 1789.

9 Strictly speaking, the utilitarian principle I have stated is stronger than the first principle of welfarism, since the latter does not require that the aggregation of individuals' goods is an arithmetic sum. Welfarism allows any increasing function of individual welfare levels to count as a social-welfare function.

10 Scanlon, Thomas M., “The Moral Basis of Interpersonal Comparisons,” and Griffin, James, “Against the Taste Model,” both in Interpersonal Comparisons of Well-Being, ed. Elster, Jon and Roemer, John E. (Cambridge: Cambridge University Press, 1991); Broome, John, Weighing Goods (Oxford: Blackwell, 1991); Hausman, Daniel M. and McPherson, Michael S., Economic Analysis and Moral Philosophy (Cambridge: Cambridge University Press, 1996).

11 Jevons, William Stanley, The Theory of Political Economy (Harmondsworth: Penguin, 1970), first published 1871; Edgeworth, Francis Y., Mathematical Psychics (London: Kegan Paul, 1881); Walras, Léon, Elements of Pure Economics, trans. Jaffé, W. (London: Allen and Unwin, 1954), first published in French 1889; Marshall, Alfred, Principles of Economics (London: Macmillan, 1920), first published 1890.

12 Jevons, , The Theory of Political Economy, p. 93.

13 Mill, John Stuart, Considerations on Representative Government (London: Dent, 1972), pp. 259–60, first published 1861.

14 Pareto, Vilfredo, Manual of Political Economy, trans. Schweir, A. S. (London: Macmillan, 1972), first published in Italian 1906. It is difficult to assign credit for this “discovery,” which was a natural progression of neoclassical economics. Some scholars give the credit to Fisher, Irving, Mathematical Investigations in the Theory of Value and Prices (New Haven, CN: Yale University Press, 1925), first published 1892.

15 Ibid., p. 391.

16 Ibid., p. 113.

17 Among the classic statements of the modern theory are: Hicks, John, Value and Capital (Oxford: Clarendon Press, 1946); Samuelson, Paul A., Foundations of Economic Analysis (Cambridge, MA: Harvard University Press, 1947); and Hicks, John, A Revision of Demand Theory (Oxford: Clarendon Press, 1956).

18 Slovic, Paul and Lichtenstein, Sarah, “Preference Reversals: A Broader Perspective,” American Economic Review, vol. 73 (1983), pp. 596605; Tversky, Amos, Slovic, Paul, and Kahneman, Daniel, “The Causes of Preference Reversal,” American Economic Review, vol. 80 (1990), pp. 204–17.

19 Thaler, Richard, “Toward a Positive Theory of Consumer Choice,” Journal of Economic Behavior and Organization, vol. 1 (1980), pp. 3960; Knetsch, Jack L., “The Endowment Effect and Evidence of Nonreversible Indifference Curves,” American Economic Review, vol. 79 (1989), pp. 1277–84.

20 Hey, John and Orme, Chris, “Investigating Generalizations of Expected Utility Theory Using Experimental Data,” Econometrica, vol. 47 (1994), pp. 263–91; Loomes, Graham and Sugden, Robert, “Incorporating a Stochastic Element into Decision Theory,” European Economic Review, vol. 39 (1995), pp. 641–48.

21 Perhaps the most careful argument for interpreting anomalies as mistakes is Charles Plott's “discovered preference hypothesis”: Plott, Charles R., “Rational Behavior in Markets and Social Choice Processes: The Discovered Preference Hypothesis,” in The Rational Foundations of Economic Behavior, ed. Arrow, Kenneth J., Colombatto, Enrico, Perlman, Mark, and Schmidt, Christian (New York: Macmillan, 1996). I think Plott's argument is questionbegging. On this, see Kahneman, Daniel's “Comment” in the same volume.

22 Mill, John Stuart, On Liberty (London: Dent, 1972), first published 1859.

23 A strict statement of this position would allow the possibility that, in some decision problems, rational deliberation leads to a tie between two or more equally rational solutions. The essential idea is that considerations of rationality fully determine the decision maker's ranking of the options open to him.

24 Harsanyi, , “Morality and the Theory of Rational Behaviour” (supra note 6), pp. 4952.

25 Broome, , Weighing Goods (supra note 10).

26 Griffin, James, Well-Being: Its Meaning, Measurement, and Moral Importance (Oxford: Clarendon Press, 1986), and Griffin, , “Against the Taste Model” (supra note 10). The quotation is from p. 64 of “Against the Taste Model.”

27 Sen, Amartya, Inequality Reexamined (Cambridge, MA: Harvard University Press, 1992).

28 Ibid., pp. 5, 45.

29 Griffin, , “Against the Taste Model,” pp. 5052, 6667.

30 Ibid., pp. 59–61.

31 Gauthier, , Morals by Agreement, pp. 2159.

32 Hume, , A Treatise of Human Nature, p. 416.

33 Sugden, Robert, “Rational Choice: A Survey of Contributions from Economics and Philosophy,” Economic Journal, vol. 101 (1991), pp. 751–85; Hampton, Jean, “The Failure of Expected-Utility Theory as a Theory of Reason,” Economics and Philosophy, vol. 10 (1994), pp. 195242.

34 Broome, , Weighing Goods, pp. 100104.

35 There is some evidence that people's preferences over certain kinds of lotteries are cyclical in this way: we can find lotteries A, B, and, C such that people prefer A to B, B to C, and C to A. See Loomes, Graham, Starmer, Chris, and Sugden, Robert, “Observing Violations of Transitivity by Experimental Methods,” Econometrica, vol. 59 (1991), pp. 425–39.

36 Gauthier, , Morals by Agreement, p. 26.

37 Schelling, Thomas, The Strategy of Conflict (Cambridge, MA: Harvard University Press, 1960); Lewis, David, Convention: A Philosophical Study (Cambridge, MA: Harvard University Press, 1969). I explore the implications of Schelling's and Lewis's analyses for contractarian theory in Sugden, Robert, “Contractarianism and Norms,” Ethics, vol. 100 (1990), pp. 768–86. I discuss Hume's treatment of these issues in Sugden, Robert, The Economics of Rights, Co-operation, and Welfare (Oxford: Blackwell, 1986).

38 Rawls, John, A Theory of Justice (Cambridge, MA: Harvard University Press, 1971). Primary goods are defined on p. 62.

39 Rawls explains the Kantian nature of his theory on pp. 251–57 of A Theory of Justice (the quotation is from p. 252). In his later work, Rawls puts less emphasis on ideal rationality, and more on the need to secure agreement among individuals with incompatible moral or religious beliefs: see Rawls, John, “Justice as Fairness: Political not Metaphysical,” Philosophy and Public Affairs, vol. 14 (1985), pp. 223–51. This later work is closer to the contractarian tradition in which I am working.

40 Rawls, , A Theory of Justice, p. 395.

41 Ibid., p. 417.

42 Ibid., p. 174.

43 Ibid., p. 62.

44 Ibid., pp. 93–94.

45 Ibid., p. 95.

46 For example, if I own shares in a company, the value of those shares on the stock market is (part of) my wealth. The dividends I receive from the shares is income. But the market value of a share is just the capitalization of the expected flow of future dividends. Income and wealth are just different ways of describing the same underlying source of value: I can realize the capital value of my shares only by forgoing the dividends.

47 Rawls, , A Theory of justice, pp. 9395.

48 Dworkin, Ronald, “What Is Equality? Part 2: Equality of Resources,” Philosophy and Public Affairs, vol. 10 (1981), pp. 283345.

* This essay was written as part of the Risk and Human Behaviour Programme of the Economic and Social Research Council of the UK (award number L 211252053).

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