Maldistribution of Final Outputs

Satiation and output losses are the only two direct reasons for the decline in effectual value. However, this decline can be accentuated indirectly through maldistribution.

In this section, it should be noted, we are dealing with delivered potential value. This means that the output losses associated with production have already taken place, but that output losses by consumers — and the consequent decrease in effectual value — are still possible.

In the context of final outputs, distribution is the assignment of outputs to the individuals who will consume them. This is a social act that should not be confused with the physical act of transporting outputs to consumers’ locations. Distribution should also be kept logically separate from allocation, which is the social act of assigning inputs to the production of intermediate and final outputs.

An output is perfectly distributed when each unit is received by the person who can convert its potential value into the highest possible effectual value. This is accomplished when the combined effect of the two factors that cause effectual value to decline — satiation and output losses — are the lowest achievable for the chosen recipient.

Any distribution that fails to satisfy this criterion is called maldistribution.

The following figure shows the effect that maldistribution can have on effectual value.

 Maldistribution of final outputs Maldistribution refers to any distribution that does not maximize aggregate effectual value. The curve labeled EVp represents perfect distribution. The curve labeled EVm represents maldistribution.

The effectual value curve labeled EVp depicts the results of perfect distribution. The curve starts below the potential value line because some output losses are almost inevitable. Because each output unit is going to the consumer who can extract the greatest health from it, the curve declines at a relatively gradual pace.

Now look at the lower effectual value curve labeled EVm, which depicts the results of maldistribution.

Maldistribution means that outputs are not being consumed by those who can extract the maximum effectual value from them, thus decreasing overall consumption capacity.

An example will help clarify this. Assume that consumers are divided into three income grades: poor, middle, and rich. The EVp curve reflects the consumption of an output by all three income grades equally.

Now imagine that the output is no longer distributed to those in the poor income grade. The effect of this change will be to reduce the output's total consumption capacity: the poor could be converting potential value into effectual value, but they have been deprived of the opportunity to do so.

Even if the outputs are fully consumed by those in the middle and rich income grades, their capacity to create effectual value has been reduced by their prior consumption—that is, by their current level of satiation.

Note that this is the same effect that occurs from satiation with respect to a population decrease. Thus, both a decrease in population and an increase in maldistribution will reduce overall consumption capacity.

Maldistribution therefore causes the initial effectual value to be lower than previously, shifts the quantity where satiation begins to the left, and causes the effectual value curve to decline more steeply than before.

All three of these effects are evident in the EVm curve. The vertical distance between the two effectual value curves, as indicated by the arrow, represents the effects of maldistribution on effectual value. As should be clear from the above figure, maldistribution can severely reduce an output’s health benefits.