Concepts
Pareto Efficiency
Also Known As Pareto Optimality
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Pareto efficiency, named for the Italian engineer and economist Vilfredo Pareto, describes an allocation of resources from which it is impossible to make one person better off without making someone else worse off. A change that leaves at least one person better off while leaving no one worse off is a Pareto improvement, and an allocation with no further Pareto improvements available is Pareto efficient. The concept is central to welfare economics as a minimal test of efficiency, and it is deliberately silent on fairness: a distribution in which one person holds everything can be Pareto efficient.
Facts
Origin YearAn earlier 1894 article, The Maximum of Utility Given by Free Competition, previewed the idea; the 1906 Manuale di economia politica is the definitive formulation historians of economic thought generally cite. SignificancePareto efficiency is central to welfare economics as a minimal test of an allocation's efficiency: under the assumptions of the first welfare theorem, a competitive market leads to a Pareto-efficient outcome, though the concept is deliberately silent on fairness. 1 Cross-Tradition Connections
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1. Wikipedia
Wikimedia FoundationPareto efficiencyQuote, Pareto efficiency
Pareto efficiency is when it is impossible to make one party better off without making another party worse off
1. Wikipedia
Wikimedia FoundationVilfredo Pareto, Manual of Political Economy sectionQuote, Vilfredo Pareto, Manual of Political Economy section
In his Manual of Political Economy (1906) the focus is on equilibrium in terms of solutions to individual problems of objectives and constraints.
1. Wikipedia
Wikimedia FoundationPareto efficiency, Welfare economics sectionQuote, Pareto efficiency, Welfare economics section
Under the assumptions of the first welfare theorem, a competitive market leads to a Pareto-efficient outcome.
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