The Little—Mirrlees Method and Project Appraisal

Abstract

It IS not uncommon in the history of positive and normative economic doctrine for a new law or a new rule to be announced which is interesting and appears to reveal something important. Under the impact of criticisms (including self-criticisms), the law or the rule is qualified, refined, redefined and reformulated until it becomes a tautology. The original, non-tautological proposition is now seen to be false, though illuminating; the reformulated, redefined, qualified proposition to be true, though tautological. Yet, the proposition and others derived from it survive because they draw strength from swinging in an indeterminate manner between falsehood and tautology. In the area of positive economics, the assumption of profit maximisation, the equation of marginal revenue to marginal cost, and the theories of the firm derived from these premises, may serve as illustrations. In optimising theory the L-M (Little—Mirrlees) method of project appraisal in some respects resembles this procedure. When it has ‘body’ and substance, when it is applicable and practical, it is open to certain objections, most of them seen by the authors themselves. When it is provisos, ‘footnotes’ and qualifications, it tends to retreat into tautology.¹

Economic welfare is a subject in which rigour and refinement is probably worse than useless. Rough theory, or good common sense, is, in practice, what we require. It is satisfying, and impressive, that a rigorous logical system, with some apparent reality, should have been set up in the field of social sciences: but we must not let ourselves be so impressed, that we forget that its reality is obviously limited; and that the degree of such reality is a matter of judgement and opinion. (Concluding sentences in I. M. D. Little, A Critique of Welfare Economics, Oxford: Clarendon Press, 1950.)

…for the man of education will seek exactness so far in each subject as the nature of the thing admitschrw(133) (Aristotle, Nicomachean Ethics 1094b).