When fairness increases robustness and efficiency, ‘tariff equalization’ as a rule for power network design

Fairness sounds an odd notion for management science, especially for innovation management that usually deals with how to better. At best, fairness is regarded as a secondary objective, and many models in management science would argue fairness is antagonistic to efficiency (Ghersi et al. 2003): there would be no point in pursuing fairness in an inefficient action. In this paper, we contend, based on the historical deployment of an innovative technical network, that ex ante fairness rules enable efficiency and robustness when facing radical novelty. Trying to define a fair transition in response to grand challenges, management economics have modelled fairness and equity as antagonist to efficiency. For instance in common-good management, the ‘tragedy of the commons' emphasized the lack of incentives for responsible behaviours and thus proposes to discriminate actors based on their adequacy to responsible behaviours (Hardin 1963). In other contexts, various literature fields in management and economics have highlighted an analogic dilemma which they refer to as the focuses on solving the so-called ‘equity-efficiency' dilemma (Ghersi et al. 2003). Empirically, we could at first understand contemporary concerns on electrification through the lens of this antagonism. Extending electric service to new consumer improves fairness and preserving the network financial viability is efficiency. Despite being an almost universal attempt, electrification displays logics of the dilemma: many centrally-planned electrification plans turned out to be unsustainable (Ranganathan 1993), resulting in new plans with degraded services for rural and poor population (Zeriffi 2010), often being justified as bottom-of-the-pyramid innovations (Prahalad 2005). If efficiency and equity were antagonistic, the only way to have a universal access to electric service would be to differentiate the service. We contend that this antagonism between equity and efficiency is no fatality once power network design is properly modelled. We take the example of the French electricity network development and highlight a paradoxical situation: we argue that in this example a specific universal fairness rule ‘tariff equalization', helped build efficient and robust electricity networks. Through this example, we show that fairness and efficiency are not competing objectives nor criteria to be prioritized (Yu 1973), but rather two design functions to be fulfilled for robust innovative design (Suh 1998). In a second section, we analyse the theoretical underpinning which justified ‘tariff equalization' and we highlight the antagonism it creates between an equal tariff and an economically efficient welfare distribution. Once the antagonism visible, we show it derives from a priori conceptual subordination between two decisional objectives – one being efficiency in cost management, the other distributional equity. We end our literature review proposing another way of framing equity and efficiency with axiomatic design theory. In a third section, after a short review of historiographic analysis of ‘tariff equalization' in France, we develop a theoretical model of power grid design which explicitly show the role of ‘tariff equalization' as a cost allocation rule. We state and prove two propositions on this model. Finally, in the last section, we discuss the role of fairness rules as emancipatory rules for innovation, and contrast it with other attempts to solve the ‘equity-efficiency dilemma', especially the Oströmian framework applied in innovative contexts.