Economic Foundations of Quantitative Techniques in HRM: Learning from Amartya Sen

Reference Sen, A. (1987). Economic judgements and moral philosophy. On Ethics and Economics, pp. 29-57. Oxford: Blackwell.

Sen (1987: 29)

Contact with the outside world has been mainly in the form of a one-way relationship by which findings of predictive economics are allowed to influence welfare economic analysis, but welfare economic ideas are not allowed to influence predictive economics, since actual human action is to taken to be based on self-interest only, without any impact of ethical considerations or of welfare economic judgements

Sen (1987: 31)

I guess it is a reflection of the way ethics tends to be viewed by economists that statements suspected of being meaningless or nonsensical are promptly taken to be ethical

A social state is described as Pareto optimal if and only if no-ones utility can be raised without reducing the utility of someone else

Sen (1987: 32-34)

That usage is appropriate from one point of view, in that Pareto optimality deals exclusively with efficiency in the space of utilities, paying no attention to the distributional considerations regarding utility

Under certain conditions (in particular, no externality, i.e. no interdependencies that are external to the market), every perfectly competitive equilibrium is Pareto optimal, and with some other conditions (in particular no economies of large scale), every Pareto optimal social state is also a perfectly competitive equilibrium, with respect to some set of prices (and for some initial distribution of peoples endowments)

Sen (1987: 35)

The converse proposition, i.e. that every Pareto optimal social state is a perfectly competitive equilibrium for some initial distribution of endowments, is more appealing, because it has been thought reasonable to suppose that the very best state must be at least Pareto optimal, so that the very best state must be achievable through the competitive mechanism

Sen (1987: 36)

While the competitive market mechanism itself ensures an economy of information as far as the decisions of individual agents are considered (given the initial distribution), the informational requirements for public decisions regarding initial ownerships cannot be easily obtained through any simple mechanism

Sen (1987: 37-38)

Even though the invoking of the second part of the fundamental theorem may often come from rather conservative quarters defending the market mechanism, that result can be of real use only as a part of some revolutionarys handbook, transforming the ownership of means of production before getting the market to do the rest. The idea that overall social optimality must inter alia require Pareto optimality is based on the notion that if a change is advantageous for each, then it must be a good change for the society.

Sen (1987: 39)

Utilitarianism as a moral principle can be seen to be a combination of three more elementary requirements: 1 welfarism, requiring that the goodness of a state of affairs be a function only of the utility information regarding that state; 2 sum-ranking, requiring that utility information regarding any state be assessed by looking only at the sum-total of all the utilities in that state; 3 consequentialism, requiring that every choice, whether of actions, institutions, motivations, rules, etc., be ultimately determined by the goodness of the consequent states of affairs.

Sen (1987: 40-41)

First, it can be argued that utility is, at best, a reflection of a persons well-being, but the persons success cannot be judged exclusively in terms of his or her well-being (even if social success is judged entirely by the constituent individual successes). But once that straitjacket of self-interested motivation is removed, it becomes possible to give recognition to the indisputable fact that the persons agency can well be geared to considerations not covered or at least not fully covered by his or her own well-being

Sen (1987: 42-43)

Even an objectively founded theory can given an important role to what people actually do value and to their ability to get those things. The fact that two variables may be so related that one cannot change without the other, does not imply that they are the same variable, or that they will have the same values, or even that the value of one can be obtained from the other on the basis of some simple transformation.