A state where no one can be made better off without making someone else worse off.
Pareto efficiency is a low bar deliberately: a distribution where one person holds everything can be Pareto efficient. It says nothing about fairness, which is why Kaldor-Hicks and Rawls exist.
In practice
- A landlord and tenant who have agreed a rent they both prefer to no tenancy have reached a Pareto-efficient outcome, whatever either thinks of the figure.
- A reallocation that makes ninety-nine people better off and one worse off fails the test, and may still be worth doing.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- Rules for choosing, and the paradoxes that humbled the theory