Pareto Efficiency:
A concept due to the Italian economist and social theorist Vilfredo Pareto (1848-1923)
A social state is said to be Pareto efficient when there is no feasible alternative to it in which at least one individual is better off and no individual is worse off. That is to say:
Given two possible states of affairs (e.g., distributions of resources) S1 and S2, S2 is Pareto efficient with respect to S1 (or “Pareto superior”) if no one prefers S1 to S2 and at least one person prefers S2 to S1.
- When a competitive market reaches equilibrium, the outcome can be described as a Pareto optimum in that there are no Pareto efficient moves left: i.e., there are no remaining ways of redistributing holdings (or whatever else can be distributed) that would make someone better off without making someone else worse off. To put that another way: State S is Pareto optimal if there exists no State S1 that is Pareto superior to it.
- One of the problems with utilitarianism, you will recall, was the problem of finding a common measure for interpersonal comparisons of utility. Pareto developed this sort of analysis to overcome such problems. We cannot make interpersonal comparisons of utility, says Pareto, but each person can judge for herself whether she is better off in S1 or S2. So, if everyone prefers S2 to S1, we have reason to believe that general social welfare must be greater in S2.
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