David Rea on Fairness and Efficiency

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In this episode of Lehigh University’s College of Business ilLUminate podcast, host Stephanie Veto talks with Dr. David Rea about fairness and efficiency, and how these two concepts can work together to address real-world challenges. Drawing on his latest research, Dr. Rea shows that allocating resources doesn’t always require a tradeoff between fairness and efficiency. 

Dr. Rea is an assistant professor in the Decision and Technical Analytics department and he holds a courtesy appointment with the College of Health. He’s interested in improving human well-being inside service systems, largely focusing on operational problems in the delivery of basic-needs services.

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Below is an edited excerpt from the conversation. Read the complete podcast transcript [PDF].

Veto: Let's talk a little bit about the difference between equality and equity. 

Rea: These concepts are often conflated and treated the same. I tend to view this through the philosophical lens of distributive justice. So it says that we have a few different principles we might apply when we make distribution decisions or allocation decisions. 

We have equality, which we generally understand, means that we want outcomes to be equal. Then we have equity, where we are going to try and prioritize merit, that is, prioritize people who deserve it. And then we have need, where we're going to prioritize people or organizations, or whatever we're allocating to based on the actual need. 

Veto: One paper you're working on is about fairness and efficiency, and how they’re benefiting each other. Can you give a brief description of the study? 

Rea: The motivation here was that we have theoretical results that suggest if you want a system to be efficient, then it can't be fair. There's some trade-off between those two. Typically, what this theoretical research shows or defines fairness to be is very equality-based. 

On the other hand, we have academic research that goes into systems that's more applied and says, "Can we make the system better and that is more efficient? And can we make it more fair?" They find that they can. 

On one hand, we've got theoretical research saying there has to be a trade-off between fairness and efficiency. On the other hand, we have research that says we can do it. Fairness and efficiency can be improved at the same time. And so what we're trying to understand with this paper is why are these things misaligned? 

We take a very analytical approach. We show that if you take a different view of fairness, that is, you let it follow those principles we talked about, equity, equality, need, then you will actually see exactly what we show– exactly the theoretical results and the empirical results at the same time. If you prioritize equality, like the most equal system and the most efficient system, there will be a trade-off. You can't have both of those. If you prioritize equity or need, you try to get proportional to something, you can actually have a system that is both efficient and fair. 

So equity can give you a little bit of a boost to efficiency in particular scenarios. Is your measure of efficiency correlated with your measure of equity? And if it is, then generally, you'll find that being equitable is actually efficient.

Veto: Do you have examples of what you studied to test this formula? 

Rea: In the paper, we do a little case study. It's very analytical. So we took a look at emergency food distribution. We don't try to claim we solve the problem. We treat it as a test example, right? 

So we take a look at state funding. That is how much funding that states are going to allocate to emergency food distribution. And then we look at where people are most in need across counties in those states. And we say, "Okay, how would you allocate this funding based on different principles?" So let's say we want to just allocate the exact same funding to all counties. It's equal. That would be simple to do. And sure, it can be argued as fair. 

We don't do that in real life. We prioritize the counties with the people who are most in need. Well, it turns out that it depends on how you define equity. So let's just say you target overall food-insecure populations. So just take the number of people who are food insecure in this county, and we're going to allocate our resources based on that in proportion. Well, that can lead to an efficient system. 

In that case, equality is less efficient than equity. So if you target the overall food-insecure population, equality is less efficient. The reasoning is that it depends on how much food costs in different counties, right? This is where the difference is coming from. 

Let's say we switch our measure for equity, and we say we're going to try and target the overall food-insecure population that's above the SNAP cutoff. So the SNAP cutoff is how much a family makes so that they stop receiving food stamps or support from the federal government. You're still food insecure, but you're not getting federal money. So it’s another way we could define need, right? If we do that, then equality is actually more efficient. 

So the point here is that it depends on how you define what is equitable, what is need, what's your target measure, and what's your measure for efficiency. And this can be true in plenty of scenarios.