Liberalism, Efficiency, and Stability: Some Possibility Results

Abstract

Drawing on the game-theoretic analysis of rights, this paper re-examines the relation between liberal principles of decision making, on the one hand, and demands for stability and efficiency, on the other. Two possibility results are obtained. First, rights assignments in which individuals enjoy maximal freedom are shown to ensure the stability and efficiency of the decision process: there is always at least one Nash equilibrium with a Pareto-optimal outcome. Second, it is shown that a universal right to be completely passive, together with a mild condition on the social decision mechanism, also guarantees stability and efficiency. Journal of Economic Literature Classification Number: D71. © 1999 Academic Press.