Pareto efficiency criterion - Revision history

Vipul: /* Definition */

2012-02-28T18:14:20Z

Definition

← Older revision		Revision as of 18:14, 28 February 2012
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	==Definition==		==Definition==

	A particular allocation of resources, or a particular arrangement, is said to be '''Pareto efficient''' or '''Pareto optimal''' (or equivalently, is said to have '''Pareto efficiency''' or '''Pareto optimality''') if there is no ''Pareto improvement'' possible. A Pareto improvement is an alternative allocation or arrangement in which ''no'' party is ~~better~~ off and at least one party is ~~worse~~ off.		A particular allocation of resources, or a particular arrangement, is said to be '''Pareto efficient''' or '''Pareto optimal''' (or equivalently, is said to have '''Pareto efficiency''' or '''Pareto optimality''') if there is no ''Pareto improvement'' possible. A Pareto improvement is an alternative allocation or arrangement in which ''no'' party is worse off and at least one party is better off.

	The criterion of Pareto efficiency is termed the '''Pareto efficiency criterion''' or '''Pareto criterion.'''		The criterion of Pareto efficiency is termed the '''Pareto efficiency criterion''' or '''Pareto criterion.'''

Vipul: /* Definition */

2011-08-30T11:44:16Z

Definition

← Older revision		Revision as of 11:44, 30 August 2011
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	==Definition==		==Definition==

	A particular allocation of resources, or a particular arrangement, is said to be '''Pareto efficient''' or '''Pareto ~~optimality~~''' (or equivalently, is said to have '''Pareto efficiency''' or '''Pareto optimality''') if there is no ''Pareto improvement'' possible. A Pareto improvement is an alternative allocation or arrangement in which ''no'' party is better off and at least one party is worse off.		A particular allocation of resources, or a particular arrangement, is said to be '''Pareto efficient''' or '''Pareto optimal''' (or equivalently, is said to have '''Pareto efficiency''' or '''Pareto optimality''') if there is no ''Pareto improvement'' possible. A Pareto improvement is an alternative allocation or arrangement in which ''no'' party is better off and at least one party is worse off.

	The criterion of Pareto efficiency is termed the '''Pareto efficiency criterion''' or '''Pareto criterion.'''		The criterion of Pareto efficiency is termed the '''Pareto efficiency criterion''' or '''Pareto criterion.'''

Vipul: moved Pareto efficiency to Pareto efficiency criterion

2011-08-30T11:28:11Z

moved Pareto efficiency to Pareto efficiency criterion

← Older revision	Revision as of 11:28, 30 August 2011
(No difference)

Vipul: Created page with "{{efficiency criterion}} ==Definition== A particular allocation of resources, or a particular arrangement, is said to be '''Pareto efficient''' or '''Pareto optimality''' (or e..."

2011-08-30T11:24:58Z

Created page with "{{efficiency criterion}} ==Definition== A particular allocation of resources, or a particular arrangement, is said to be '''Pareto efficient''' or '''Pareto optimality''' (or e..."

New page

{{efficiency criterion}}

==Definition==

A particular allocation of resources, or a particular arrangement, is said to be '''Pareto efficient''' or '''Pareto optimality''' (or equivalently, is said to have '''Pareto efficiency''' or '''Pareto optimality''') if there is no ''Pareto improvement'' possible. A Pareto improvement is an alternative allocation or arrangement in which ''no'' party is better off and at least one party is worse off.

The criterion of Pareto efficiency is termed the '''Pareto efficiency criterion''' or '''Pareto criterion.'''

==Facts==

* Generally, all points on a ''frontier'' are Pareto efficient, while all points on the inside are not. For instance, given a [[production possibility curve]], the Pareto efficient production possibilities are precisely the possibilities ''on'' the curve, while production possibilities in the interior region are not Pareto efficient because production of both goods can be increased.
* Pareto efficiency is a fairly weak criterion and there can be multiple very different arrangements that are Pareto efficient, as described for instance by the multiple points on the production possibility curve.
* Because of this problem of Pareto efficiency being too weak to yield unique allocations, we often consider a modified version where gainers are in a position to compensate losers (known as the [[compensation principle]]). For instance, an outcome in which <math>A</math> gets 100 units and B gets 3 units is not a Pareto improvement over an outcome in which <math>A</math> and <math>B</math> both get 5 units, but if we allow <math>A</math> to provide partial compensation to <math>B</math>, we can get an outcome that ''is'' a Pareto improvement over an outcome where <math>A</math> and <math>B</math> both get 5 units. A modification of the Pareto criterion that accounts for ''potential'' compensation (Without necessarily including the compensation as part of the arrangement itself) is termed the [[Kaldor-Hicks efficiency criterion]], also called the '''potential Pareto criterion'''.