Quantifying Inefficiency

Abstract: We axiomatically define a cardinal social inefficiency function, which, given a set of alternatives and individuals' vNM preferences over the alternatives, assigns a unique number -- the social inefficiency -- to each alternative. These numbers -- and not only their order -- are uniquely defined by our axioms despite no exogenously given interpersonal comparison, outside option, or disagreement point. We interpret these numbers as per capita losses in endogenously normalized utility. We apply our social inefficiency function to a setting in which interpersonal comparison is notoriously hard to justify -- object allocation without money -- leveraging techniques from computer science to prove an approximate-efficiency result for the Random Serial Dictatorship mechanism.