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Pareto Efficiency

Definition #

If a change from X to Y results in at least one agent better off without making any agents worse off, we call Y a Pareto improvement relative to X. If no more Pareto improvements are possible, the situation is said to be Pareto efficient or Pareto optimal.


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Meta #

When thinking about a proposed Pareto improvement, consider the resistance to change on the part of the people who will implement your proposal. You may realize that your proposal is no longer a Pareto improvement because of the non-monetary costs involved.