that the pursuit of allocative efficiency is a good thing. It is important to
understand, however, that the goal of a more equitable distribution of
income often conflicts with the goal of allocative efficiency. To
understand why this is so, see Extensions in Theory 16-1 , which discusses
Arthur Okun’s famous analogy of the “leaky bucket.”
Extensions in Theory 16-1
Arthur Okun’s “Leaky Bucket”
Economists recognize that government actions can affect both
the allocation of resources and the distribution of income.
Resource allocation is easier to analyze because economists
have developed precise definitions of efficient and inefficient
allocations. Distribution is more difficult because we cannot
talk about better or worse distributions of income without
introducing contentious value judgments.
When government policy aims to redistribute income, allocative
efficiency will often be reduced. Arthur Okun (1928–1980), who
was a noted economist at Yale University, developed the image
of a “leaky bucket” to illustrate this problem. Suppose we have
a well-supplied reservoir of water and we want to get some
water to a household that is not able to come to the reservoir.
The only vessel available for transporting the water is a leaky
bucket; it works, in that water can be delivered to the intended
location, but it works at a cost, in that some of the water is lost