on the trip. Thus, to get a litre of water to its destination, more
than a litre of water has to be removed from the reservoir. It
may be possible to design better or worse buckets, but all of
them will leak somewhat.
The analogy to an economy is this: The act of redistribution
(carrying the water) reduces the total value of goods and
services available to the economy (by the amount of water that
leaks on the trip). Getting a dollar to the poor reduces the
resources available to everyone else by more than a dollar.
Thus, pursuing social goals—like the redistribution of income—
conflicts with the goal of allocative efficiency.
Why is the bucket always leaky? Because there is no way to
redistribute income without changing the incentives that
private households and firms face. For example, a tax-and-
transfer system that takes from the rich and gives to the poor
will reduce the incentives of both the rich and the poor to
produce income. This redistribution of income will often lead to
less total income being generated. As another example, a
policy of subsidizing goods that are deemed to be important,
such as post-secondary education or daycare services, will
cause the market prices of those goods to be lower than
marginal costs, a result implying that resources used to
produce those goods could be used to produce goods of
higher value elsewhere in the economy.