Seminar 2: The Limits of Markets (19 January)

In this seminar we consider two contributions that examine how far one may want to use markets as a means of regulating scarcity. The paper by Sandel instead is a synthesis of his view that there are limits to the use of markets.

Reading

Coase ‘The Federal Communications Commission’ (1959) 2 Journal of Law and Economics 1

Eric Posner, Stephen J. Choi & G. Mitu Gulati, ‘Altruism Exchanges and the Kidney Shortage’ (Coase-Sandor Institute for Law &Economics Working Paper No. 630, 2013)

Sandel ‘How Markets Crowd Out Morals’ The Boston Review 1 May 2012 (link here: http://www.bostonreview.net/forum-sandel-markets-morals)

11 comments on “Seminar 2: The Limits of Markets (19 January)

  1. Ola Innset says:

    It appears to me that the central insight of Michael Sandel’s short article is not necessarily what’s referred to in the title – the idea that markets may potentially crowd out morals –this is adressed with some success by Posner et al in their paper. At the end of his article however, Sandel points to the way in which economists fundamentally misunderstand the nature of altruism by seeing it as a scarce resource.

    According to Andrew Gamble, much of Friedrich Hayek’s philosophy was based on a view of modernity as somehow reversing traditional morals. In a modern society, individuals’ sense of altruism must never extend beyond their immediate social circle, thought Hayek, as this would threaten the market order that had evolved spontaneously over centuries. In the market order one must act only to maximize self-interest, and the invisible hand will take care of the rest. According to Hayek, the fundamental intellectual error of socialism was that it presupposed that ancient morals from pre-modern societies, which were much less intertwined, could be put to work in modern societies such as ours.

    Posner et al, and for instance Kenneth Arrow and Larry Summers who are quoted in Sanders’ text, however, seems be trying to come to terms with the fact that altruism can’t simply be banned from society at large and contained within close relations. The only way they know how to do this, however, is by seeing it as a scarce resource, something Sandel criticizes excellently.

    An economistic approach reduces altruism, or solidarity, to charity, which it can then be argued that simply needs to be put to use more efficiently, that is with the help of market mechanisms. Then you get papers such as that of Posner et al, and TED talks about how charities need to work like businesses, so as to be as succesfull at “doing good” as succesful businesses are at making money ( http://www.ted.com/talks/dan_pallotta_the_way_we_think_about_charity_is_dead_wrong).

    From a pragmatic point of view that may be helpful in some ways, and an “altruism exchange” might get more kidneys donated. But it does reveal a very limited understanding of how we may improve society, an understanding based on the fundamental idea that individuals’ preferences are so diverse that they can never be coordinated by any other mechanism than a/the market. (“People vary considerably in their altruistic preferences” (p. 10).) It seems to me that this effectively makes collective agency an impossibility…

  2. What Choi, Gulati and Posner’s Altruism Exchange article made most clear to me is that in many ways my key ethical/political problem with the generalization or extension of the market/exchange/cash purchase logic concerns, not the exploitation of the poor, but the domination of the rich.
    Coase’s piece on the Federal Communications Commission emphasises an important dimension of market operation that is sometimes obscured (and perhaps in some cases not even present) in a movement to “market” logics: namely, that a good or a service or a right or a license or a power is not just sold, but sold to the highest bidder. What Coase’s useful historical review of the regulation of frequency allocation shows is a country wrestling with how to manage a set of practices in accordance with a republican principle of public benefit and public virtue. Much like the republican ideal of Congress, the goal seems to have been to construct broadcast radio in such a way that it not only allowed a diversity of voices and conflicting voices to meet in a shared ‘space’ but in so meeting to somehow both develop and act in accordance with an idea of the public good.
    One can of course doubt whether this is currently achieved or ever was in Congress itself. It is especially hard today to see Congress as anything other than a site of naked interests fighting to the very edges of the institutional rules to protect naked constituency interests–with the public interest nowhere to be found. Coase’s piece on the FCC likewise chronicles the presence of private gain, arbitrariness, self-dealing and excluded voices in the operation of the broadcast airwaves that indicate clear failures in the implementation and operation of the radio airwaves as a public space in service of the public end. His solution to the latter problem is simply to divide that space into pieces most amenable to and attractive for sale to “the highest bidders.”
    It might be fruitful to think about why seats in Congress would not be properly allocated the same way. Here, of course, we come into territory touched on by Sandel, the question of “corruption.” But this is also my jumping off point for a concern about kidney purchases that Choi, Gulati and Posner miss entirely. The problem with selling seats in Congress is that this would be contrary to its founding ideal of democratic equality; my suggestion is that allowing kidneys to go the highest bidder would, as well. My intuition or argument is that a society in which possession of the fundamentals of human life–including the constituent parts of the human body–are directed to those most able to pay is one that also comes into tension with the ideal of democratic equality. And I simply don’t buy Coase’s response that attention to “willingness to pay” allows us to ignore differentials in capacity to pay.
    In that sense, I am not sure I would object to payments for kidneys from a centrally-organized institution allocating transplants according to some principle of public benefit.

  3. Florian says:

    From an interdisciplinary perspective and in the pursuit of insight, I really enjoyed Sandel’s paper on how markets can crowd out morals. It adds an important perspective to economic research that is often overlooked.
    From an interdisciplinary perspective I think Sandel’s paper can be held to be encouragement for a form of economic thinking or modeling that takes a multi-disciplinary approach to look at the bigger picture, whatever that may be in a certain context.
    This can alsobe generalized from a methodological point of view when compared to other (natural) sciences. They all use models, approximations of the reality that has been observed in experiments. However, sometimes scientists are reminded that these are only models, and there may be circumstances and environments where they fail, and so adjustments have to be made or a new model developed that takes these changes into account.
    In the same vein, economists have to keep in mind that they only work with models, but with the added difficulty that their models often are not based on an observation of reality, but an idealized version of reality, that implicates a lot of assumptions. Even when some data is used to back up a model, I think it is fair to argue that economic data gathering is often much harder when compared to natural sciences, so while of course conclusions will still be drawn, the basis is often thin. This is maybe because economics, as I see it tries to be a cross between Maths, social sciences (when describing economic developments for example) and some parts of the methods used by natural sciences. The reality that the economists try to describe however can’t be explained only by equations as in Maths (or they have the wrong data), they are not scientific enough for natural scientists (because social science, in a way) and they can’t gather enough data or can’t process it even if we assume that there are great models that can encompass almost everything as in many natural sciences.

  4. Jotte says:

    Michael Sandel’s argument is that market-style incentives sometimes frame social interactions in ways that induce self-interested rather than ethical actions. His argument is that when things are put up for sale, “market values” come to dominate where often times “moral values” should dominate instead. As he puts it, “markets crowd out morals.” “Market values,” which include “the logic of buying and selling”, can, once introduced, crowd out other values. Sandel worries about the consequences of this for civil society. In his book on this topic he develops the point by virtue of numerous examples. One example is the discourse on sustainable development. A discourse that contextualises nature, first, in terms of an ecosystem and, second, as an area in which rights to pollute can be traded. Thereby, previously untapped areas are being opened in the interest of capitalization and chances for commercial exploitation. Sandel critiques this process by qualifying it as an approach that ‘says in effect that emitting pollution is not like littering but simply a cost of doing business. But is that right? …To decide this question, we need not only to calculate costs and benefits; we have to decide what attitudes toward the environment we want to promote.” As such, “The question of where markets belong is really about how we want to live together,” but the appropriate scope of markets also depends on what one takes as the alternative to the market and what one can say about its cultural consequences. On this point Sandel does not offer so much, which is indicative of the general lack of a clearly articulated alternative to the market approach to social organisation.

    In the context of institutional policy or design, the case for following the ex ante market rationale option is strong and appealing because policy must, at some stage, require instruction and require that something or other must be ultimately done – in stead of just talking about it. In other words, society might well be willing to protect a particular moral issue but also want a mechanism that allows the application of a clear and transparent standard of assessment. Thus, the use of a market rationale is also partly about simplifying the application of the rules to account for a particular objective, rather than a way of saying that people should treat each other as commodities. For example, the Posner piece for this weeks readings can be seen as merely one option to deal with a problem that is highly complex to create policy for on a societal level.
    Sandel’s point, however, in this frame can be said to be concerned with the one sidedness of the market rationale that provides a very attractive and quantifiable grammar and rationale to solve issues that are morally salient or complex but is likely to ignore or crowd out considerations of a broader concern that are inherently less clearly formulated. This can be illustrated to some extent by looking at the way Coase redefines the issue of public interest in terms of a pricing issue in his seminal piece on broadcasting regulation by the FCC. Coase considers that resource scarcity and the potential for interference, are what had necessitated a regulatory response and the existence of the FCC. From this assumption, based on some archival material, Coase then proceeds to demonstrate that if the nation’s lawmakers had given a bit more thought about the challenge at hand, they would have recognized that well defined property rights and the price mechanism—not regulation— were all that was needed to allocate the radio spectrum in a socially optimal manner. Moss and Fein (Moss, David A., and Michael R. Fein. “Radio Regulation Revisited: Coase, the FCC, and the Public Interest. Journal of Policy History 15, no. 4 (2003): 389-416) have pointed out that this reading of the legislative intentions by Coase has been extremely selective and one sided. Instead they demonstrate that the legislative intent in the design of a strict regulatory framework was because they saw regulation as the best way to prevent the airwaves from being dominated by just a small number of voices:

    “These findings obviously raise questions about Coase’s normative claim that spectrum auctions would better serve the public interest than regulation. As the early legislative record suggests, much depends on one’s conception of the public interest. Radio was regarded as special, however, not because of some distinctive economic characteristics, but rather because of distinctive political characteristics associated with the power to broadcast and to shape public opinion.”

    As such FCC was charged with bringing about a socially optimal use of the medium that was not likely to be achieved in an unregulated market. Here the Sandel critique comes in. Perhaps because the case for regulation was not stated with the kind of logical precision that the economists demand, Coase interpreted the support for radio regulation as an expression of mass anxiety about a mysterious new technology. Coase’s ideas about the optimality of a market-based approach to spectrum allocation have ended up playing a central role in redefining the “public interest” and, in turn, in driving deregulation of the industry on public interest grounds . This therefore serves as an example of how the powerful discourse of the market can trump and crowd out alternative visions of the public good merely by virtue of the fact that policy discourses value clearly articulated and concrete results over morally salient and contestable conceptions of the public good.

  5. Chris says:

    I found the piece by Posner et al entitled “Altruism Exchanges and the Kidney Shortage” a particularly frustrating read.

    In the first section of the article, the authors set out the two main moral oppositions to a market in human organs, that the human body should not be turned into a commodity, and that the development of such a market would result in exploitation of the poor.

    The authors then commit to presenting a solution to the kidney shortage that overcomes the stated moral objections by insisting upon a requirement of altruism. From this point, I had the distinct feeling that the authors stopped arguing for a solution in which they truly believed, and instead began to set out an intricate scheme that complied (albeit in increasingly dubious ways) with the self-imposed constraint that some element of altruism must be maintained.

    The authors’ first proposal is that the concept of paired kidney exchange should be expanded so that the counterparts donation need not be a kidney, but another altruistic gift that is sufficiently valued by the donor that it incentivises their own gift of a kidney. The authors then state five problems that may arise from sun a scheme (all of which, it should be noted, would not arise in a market for organs), before going on to make two more proposals that are designed to address these problems.

    A better approach would have been to argue that the only true moral opposition to a market for organs, the exploitation argument (the argument that the human body should not be made a commodity is ludicrous and this is recognised by the authors) could be sufficiently dealt with by appropriate regulation. This is an argument that, from the tone of the piece, I suspect the authors would be truly capable of believing in.

  6. Fabrizio says:

    I would like to comment the Coasian analysis of the FCC. Coase first offers a reconstruction of the history or regulation. During the process he identifies two problems. One is the interference between users of the ether, the second is the threat imposed by the FCC in its role of “traffic policeman of the ether” to freedom of expression and press. This second aspect is however mainly set aside in Sections from III to V. It reappears sometimes (ex., pp. 16-17).

    This strategy allows Coase to tell a story where the only reason for regulating is the scarcity of the resource and then claim that this is “a misunderstanding of the nature of the problem” (p. 14).
    The arguments he uses are consistent the position expressed by Harcourt on Coase’s skepticism. At p. 18 there is a quick expression of regulatory distrusts; at p. 19 the capital market failure problem that would raise concerns on the distortion caused by a bid is dismissed with an indirect reference to someone else’s work; when he discusses the reasonableness of having public authorities to bid for their frequencies, Coase sees the potential budget problem, but without references he states that “it is not clear that it is true” (p. 22).

    Only in Section VI it is reconsidered that there is a wide spread value judgment that broadcasters have a social responsibility (pp. 37-40). He does not directly engage with this view but states that the argument to be criticized is that the property of the waves is public and so it has to be used in the public interest. He replies that the argument is unconvincing because “there is no reason why there should not be private property on frequencies” (p. 39). However, the social responsibility seems a reason to regulate. Whether it is strong enough, is a different story. Besides, stressing the public nature of the property could be related to the problems in the first half of the 20th century in the regulation of rates under the 4th Amendment scrutiny. Stressing the public nature of the property allowed to bypass the scrutiny altogether.

    My main economic concern is with the argument that giving the frequencies for free is a free lunch (for example, p. 22). I am quite convinced that according to accounting principles, an eventual up-front fee would be the object of an amortization schedule and be deduced as costs during the years of operation. If so, it reduces profits and the amounts of taxes the operator pays during the time of the service. However, it reduces the financial barriers to entry. These barriers where also likely to be high to the extent that since radio was a new industry, it was likely that banks were cautious in granting founds.
    More generally, the interference problem is fixed by establishing property rights, regardless of the way you use for allocating them.

    Finally, Coase never seriously engages in a market comparison with newspapers and with the differences, if any, that these two industries pose in terms of freedom of expression. Two differences, however, come to my mind. First, it is easier to prove a violation of this freedom by the press. You just need to give as evidence a copy of the newspaper. In the 60’s, to prove what was said in a radio program was much more difficult. Second, the preferences of consumers/consumer sovereignty (p. 18) offer a better gatekeeping in the press. People have to buy the newspaper, while the cost of listening to a program is the electricity.

  7. stavros says:

    In the Federal Communications Commission Coase discusses the issue of regulating the broadcasting industry. The basic problem seems to be how should be allocated the licensing rights (scarce resources) of an emerging industry to the potential participants.

    His main argument is the following:

    The fundamental assumption is that all that matters is whether the distribution of resources contributes to efficiency (p. 19). Under this criterion we may choose among different mechanisms of allocating resources. In general, it is more efficient to let the forces of the market, rather than an administrative body, determine the allocation of scarce resources, except if the cost of operating the market significantly exceeds the costs of an administrative allocation of resources (p. 18). Once the rights of potential users have been determined (initial distribution), the rearrangement of rights could be left to the market, for the institution of private property and the pricing system will resolve any conflicts that may arise (p. 28-30). So, we should allocate the resources to the highest bidder (the “most willing to pay”) and then let the market adjustments correct any potential malallocation of resources. This could be deemed as the default legal and economic arrangement (“default arrangement”).

    In light of this default arrangement Coase (insufficiently) investigates the specific characteristics of the broadcasting industry, he draws an analogy between broadcasting and transmitting information by other means (i.e. newspaper etc.) and he highlights that the root of the confusion lies in ignoring what is going to be sold: the right to use a piece of equipment to transmit signals in a particular way (p. 33). In this respect, emphasis should be given to his analytical argument: he contends that “there is no analytical difference between the right to use a resource without direct harm to the others and the right to conduct operations in such a way as to produce direct harm to others. In each occasion something is denied to others: in one case use of a resource; in the other, use of a mode of operation” (p. 26). This approach is presented in detail in the Problem of Social Cost where he discussed the problems associated with the actions of firms, which have harmful effects on others. For Coase a wrong question to ask when A inflicts harm on B is how should we restrain A; a better question to ask is whether we should allow A’s or B’s harm occur. Because of the reciprocal nature of harm the ultimate aim, which also corresponds to his fundamental assumption, is to avoid the most serious harm. However, reducing “harm” to “cost” makes Coase ignore other important dimensions of the concept of harm.

    Further, he completes his argument as follows: adopting a different allocation mechanism (e.g. a special mix of property rights and regulation) from the default mechanism should be justified on the fact that the relevant activity or market bears certain specific characteristics (Coase does not explain which are these). In other words, both regulation and property rights plus the pricing system in principle serve the public interest. Since both mechanisms of regulating economic activities are for the public interest, in order to determine which path should be followed, it is necessary to focus on the particularities of the specific activities. Taking into account that there are not any fundamental changes (Coase does not define what constitutes a “fundamental change”) between the broadcasting industry and other industries it is implied that the applying legal and economic arrangements should not differ (p. 40). Hence, he concludes that there is nothing in the broadcasting industry, which prevents the function of the market forces (p. 20) and, thus, the default arrangement should be adopted.

    In his essay, Coase seems to beg the question at a certain degree. In particular, after presenting in detail the underpinning rationale of the legal framework in force at that time concerning the broadcasting market he submits that the problem arises because of a failure to charge for the rights granted. Nonetheless, he does not fully tackle the question how these rights should be granted. To my understanding his response would be that the allocation should be made by what I have described as the default arrangement. However, there is not any cost-benefit analysis calculating the different costs between the default arrangement and an alternative regulatory arrangement. In addition, he postulates that some special regulation would certainly be required but he recognizes that only experience could show what kind (p. 30). Then he argues in favour of a public tender for opening up the relevant market, but he does not clarify what should be the criteria under which the regulatory authority will make up its mind. The default arrangement implies that the only value in play should be efficiency and, thus, “the highest bidder” becomes the only applicable criterion . But if we recognize that there are other considerations triggered by different public goods then Coase does not fully assist the authority to decide. Specifically, if there are other public goods except efficiency, and these goods cannot be reduced to efficiency, then Coase’s framework does not tackle the problem at hand.

    This line of critique suggests that Coase seeks to avoid what Sandel mainly does: a moral inquiry of the issue (i.e. “the question of where markets belong is a question of how we want to live together”). Coase attempts to show that his approach is an amoral/scientific one. For Coase the market mechanism does not imply that resources go to those with most money, but to those who are willing to pay the most for them. He recognizes that the initial distribution of resources amongst persons may be unsatisfactory from a moral perspective, yet he overcomes the moral issue arguing that in the markets where the distribution involves firms no ethical considerations apply; it is a purely economic decision. Thus, he concludes, in this kind of markets the only thing that matters is whether the distribution of resources contributes to efficiency.

    Nevertheless, I think that the most intellectually honest way to read Coase’s essay is as a moral treatment of the issue, and specifically as applied utilitarianism (this comes in line with what I have indicated as Harcourt’s main contribution in the previous post). In other words, although Coase does not admit it explicitly, deals with an issue of distributive justice. For this reason I think that Sandel frames the relevant problem in the right way: He openly asks whether there are and should be any limits to the use of markets and he submits that using the market as a means for allocating scarce resources involves inevitably value judgments. By recognizing that this is a moral conundrum and following an Aristotelean line of argumentation (i.e. searching for the meaning and purpose of goods and the values that should govern them) Sandel offers a certainly useful conceptual framework: if we want to discover which are the pragmatic and normative limitations of the markets we should engage in empirical research for the pragmatic part and in moral inquiries for the normative aspect. In addition, an alternative way to think of the problem is to examine the phenomenon of commodification and its impact to our mentalité, moral attitude and behavior. As far as I am concerned the process of commodification restructures our collective opinions and has a real effect on our social condition. However, commodifying a good is not like creating artificially a collective feeble and it does not always result from arbitrary or subjective decisions. Therefore, we should come to realize what goods can and should be commodified and which not through an evaluative procedure.

    Once the issue is framed that way, different value arguments will attempt to tackle its normative limb and provide us with a solution in accordance with a school of thought. This deliberation process involves a moral inquiry where different comprehensive doctrines attempt to offer the most plausible solution; it is not a scientific, neutral (value-free) discovery of some truth. However, this does not mean that it is a priori subjective and arbitrary. It merely means that the issue cannot be resolved, unless we discuss how do we want to live as Sandel puts it or how our society can accommodate a plurality of goods that are valued in different ways.

  8. Elias says:

    The reading of Coase’s paper on the “Federal Communications Commission” was very interesting.

    First, In light of the reading of Harcourt’s two chapters that we discussed last week, it is quite striking to see how the linguistic concepts of “chaos” and “order” are associated with different forms of economic structure, markets and regulation. The way in which Coase describes the establishment of a system based on property-rights and on the allocation of resources by the price mechanism suggests that the creation of a competitive market in the field of radio frequencies constitutes only one regulatory alternative to other forms of regulation such as the grant of public monopolies or licenses. From this perspective, the introduction of property rights and a competitive price mechanism seems to be one possible regulatory instrument which orders a situation which could perceived as prototype of a “natural”, “free” and “anarchic” (in the Nozickean sense) market where everybody uses a scarce resource according to its preference (without taking into account negative externalities). At the same time, Coase makes an interesting linguistic shift by describing the price mechanism as neutral and anonymous mechanism for the allocation of resources which establishes a certain order. Simultaneously, he attributes to this mechanism some human characteristics when he refers to the price mechanism as decision maker which influences the choices of the market participants through price and cost incentives.

    Second, Coase’s refutation of critical voices focusing on the distributive effects of the introduction of property rights (in particular p.19) reflects what Harcourt described as “depoliticization” of distributive outcomes through the application of the concept of (competitive) markets as natural order. This is even more obvious with regard to Coase’s critique of the governmental regulation in the field of radio frequencies based on the 1st amendment and the right to freedom of speech. Coase criticises on the one hand that governmental regulation in the field of radio frequencies indirectly regulates the content that consumers could receive. On the other hand, he totally ignores and does not problematize that by the establishment of a property-based system the market mechanism and in the end certain enterprises exercise a similar control on the content. Indeed, this form of restriction of free speech is implicitly accepted as legitimate. From this perspective, Coase’s property rights- and market-based form of regulation, only allows the resolution of conflicts arising between different holders of property rights, whereas potential conflicts between holders of property rights and downstream consumers (who do not hold any property rights) are ignored.

    Third, current regulatory challenges in the field of the internet and of the telecommunications sector underline the salience of Coase’s paper. For instance, even though the EU regulation of the telecommunication sector tries to focus on an economic regulation, it also has indirectly an impact on the broadcasted content. The current regulatory framework hinges upon the distinction between “electronic communications services” (which focus on the conveyance of signals on electronic communication networks) and „audiovisual media services“ (which refers to the provision of certain audiovisual content). Recent case law, for instance Case C-518/11 UPC Nederland, reflects that this distinction does not prevent network regulation from having a certain impact on the broadcasted content. The debate on network neutrality raises similar issues. However, it is questionable whether the proper allocation of property rights could entirely resolve the underlying conflicts.

  9. Haukur says:

    I did not find Coase’s argument convincing. The potential of monopolising the whole spectrum of radio frequencies was definitely a legitimate concern before more recent technologies made such monopolization much more difficult. Using a market solution to distribute a social good of this kind invites those with the resources to show the greatest willingness to pay an opportunity to monopolise the distribution of mass information. One does not have to be an expert in politics or history to know that distribution of information is and has been a key asset for anyone with political and business aspirations for much of mankind’s recorded history. Coase’s analogy with printed material does not work. It is much harder to monopolise printed material, but still those in power usually try to control the information distributed through those means. The internet changed this for a while, but we will probably see a tighter control there as well in the future.

    Coses’s fallacy is to think in terms of a single currency. He defines the market in terms of money; cash is king. Everything is reduced to money and those rule that have the resources to show the greatest willingness to pay. I would suggest society as a more dynamic marketplace. Money matters a lot in some segments of this grand marketplace. Those segments however tend to concern issues that are relatively unimportant. The important issues are subject to a different currency. In the modern democracy the vote is the currency that really counts. In that regard it is not unusual that an important issue, such as the opportunity to distribute mass information, gets decided via the most efficient means in terms of the ultimate currency; the vote, which tends to be a resource that is evenly distributed through the whole population.

    Erik Posner and Co go to great lengths of describing a transaction system that avoids redistributing resources to the poor, which they consider to be generally unsophisticated and prone to taking stupid decisions regarding their organs. I don’t get the point of the exercise. Would be a much better suggestion to just allow people to sell their kidneys and perhaps regulate it somehow sensibly. That would at least allow the poor to benefit from such transactions.

    Sandel is also a bit off. He thinks that a transactions must involve money and thus you can’t buy friends. For me that is a very narrow interpretation. I would argue that we certainly invest in friendship through various actions, and we of course expect the friendship to be returned. That is an obvious transaction where the currency is perhaps not money.

    I would define the term market very broadly; I give you whatever I might be able to give you, in return for whatever I may want and you are both able and willing to give in return. A bit like a huge excotic bazar where everything is for sale, and everything can count as a currency.

    • The best discussion of friendship in the philosophical literature is found in Aristotle’s Nicomachen Ethics. Here is a nice discussion: http://enlightenment.supersaturated.com/essays/text/carolynray/aristfriend.html Here is a passage on friendship and “exchange”:
      The very best friendships are characterized by an equal exchange. But the exchange is unequal when the friendship is between non-equals. And “when the loving reflects the comparative worth of the friends, equality is achieved in a way, and this seems to be proper to friendship” (1158b24-33). [Here is another surprise for the reader who thinks Aristotle is an altruist: the person who is rightly loved more is the one who has more to begin with, either of wealth, power, age, virtue, or the right sex–not the one who needs it more; nor it the case that both just pour out all the love they can must simply for the sake of the other person.] And it is the degree of friendship which determines what is just. The closer the friends, the more carefully must the claims of justice be attended to.
      dmp

  10. Alice says:

    In the example of broadcasting, Coase argues that scarcity of ether in itself does not call for regulation of the broadcasting market. He shows that it is possible to use the price mechanism when dealing with a resource that is in limited supply. It is even better since private transactions lead to the optimum utilization of rights. Indeed administrative agencies operate under two handicaps: they lack the precise monetary measure of benefit and cost provided by the market and the information on consumers’ preferences. Administrative allocation of resources can be good only if the cost of operating the market exceed the cost of running the administrative agency.
    Actually, allocations of resources by another mechanism than prices occur especially when there is a will to shape the market according to political or moral believes. In the example of broadcasting, non-market mechanisms are actually designed to influence programming. Another example is kidney donation, most of the countries refuse a kidney market for moral reasons.
    Sandel even shows in the Swiss village example that sometime it is more efficient to rely on altruism than on price mechanism.
    However, I would say that even if a money exchange does not occur, a market mechanism might still be at play. A person may give a kidney to obtain a benefit in exchange and not for pure altruism. This is the case in the Posner, Choi and Gulati’s example of altruism exchange; the donor will benefit from the donation by knowing that the recipient will engage in charitable activities. Friendship or loving relationships may also be governed by market mechanism as soon as each person want to gain a benefit from the relationship.
    In the end, I would say that there are actually very few limits to markets, but that essentially for moral reasons some market mechanisms are disguised.

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