I think it has been clear at least since Sen's Paradox of Paretian Liberalism that there is at least some tension between Pareto criteria of efficiency, according to which preferences have unrestricted scope, and the idea that individuals should have a certain kind of sovereignty or decisiveness over their own actions. Sen's original paper dealt with “meddlesome preferences,” that is, preferences about other people's behavior, like the preference that other people sleep on their belly, or that other people not read Lady Chatterly's Lover. As Buchanan pointed out, Sen's paper seemed to equivocate between the idea of liberalism as having to do with deciseveness over entire states of the world, and elements of those states. But
. . .the rule of liberalism does not, and, indeed, cannot assign rights to choose among complete social states to anyone. Persons are assigned rights to control defined elements which, when combined with the exercise of mutually-compatible rights of others, will generate a social state as an outcome of an interaction process, not of a 'choice', as such, by either one or many persons.
Liberalism, as it is normally understood, has to do with protected spheres of personal authority in which one's own preferences are decisive. The question of how those spheres of authority, those rights, are initially assigned is not itself a matter of pareto-efficiency. But once those rights are assigned, meddlesome preferences do not throw us into a quandary. If you prefer that I am bearded, and I prefer that I am clean shaven, the question is already solved if, at the negotiation stage over the initial assignment of rights, it is agreed that we are each decisive over the state of our own face. You can't object to having been harmed because my shaving caused your preference to become unsatisfied, because you've already bought into a regime of rights according to which you waive any say about what I do with my face. If you still have a problem, it's because you never thought that how my face looks is properly up to me. Your problem is really with the assignment of rights, not the fact that my walking around unshaven (on the semantic interpretation) screws up the fit between your preference and the world, or (on the psychological interpretation) pains you.
Once individual rights have been assigned or partitioned, the Pareto criterion does offer a means of evaluating potential transfers of rights among individuals. At this point, 'meddlesome preferences' may reenter. If a person is assigned the right to determine his own reading matter, he can guarantee the enforcement of this right as a part of the observed social outcome. If, however, someone else places a higher value on this person’s reading habits than he does himself, the Pareto norm would suggest the mutuality of gains from a transfer. In the end, the 'meddlesome preferences' may prevail, but only if those who hold them are willing to pay for their exercise.
How does this relate to the idea of economic success as pollution? Recall that Layard interprets upward moves in the income distribution as creating hedonic “pollution” for people below. Clearly, Buchanan's suggestion in the second quoted passage isn't going to apply. Obviously, if I tried to pay someone ahead of me to move down the distribtion, I would achieve the opposite effect, causing even more “pollution.”
I think the key point is in the first Buchanan quote above. The “income distribution” is the emergent outcome of the interactive exercise of rights, not anybody's decision. It's a pattern created by lots of individual decisions. Now, what should we say if people have preferences over the pattern, but that the pattern is created by interdependent rights-governed individual action? What should we say if most people are disappointed by the pattern?
I say: So what?! If the initial rights are just, that is. If every man prefers to be clean shaven, but prefers that everyone else by bearded, i.e., prefers a pattern of shaven-ness in which he is the only clean-shaven man, everyone is going to be disappointed with the pattern. But the pattern is the outcome of the exercise of rights we all endorse (every man agrees that he should have final say over his face). Similarly, if we agreed that we ought to be decisive over the alocation of our time to labor and its alternatives, then the pattern is the pattern, and there is no ground for complaint.
But you're a utilitarian and you see that people are wasting time maintaining position in the distribution for no average hedonic gain. If there was a multilateral decision to work less and vacation more (or whatever), the distribution would still be the distribution (some higher, some lower) but everybody would be hedon-happier because it would take less work just to maintain position.
What kind of argument is this? This is, I think, an argument appropriate to the rights negotiation phase. At the imaginary contractarian constitutional convention, you might submit this argument as a reason why everybody ought not to be decisive over their allocation of time and energy. Or at least, that everybody's decisions ought to biased toward leisure, or whatever, by putting the public thumb on the scale.
I have a number of things to say about this, few of them good. But I'm tired. So, what do you make of Layard's argument as a bit of contractualist reasoning? What would Buchananite rational choice conventioneers make of it? Veiled Rawlsians? Scanlon's reasonable rejecters? Would each person have to accept util maximization as her overriding personal goal?