Pareto Efficiency

07-27-2020 06:18 PM By Sandbox Team

Pareto efficiency refers to a situation where no party (individual or preference criterion) can be made better off without making at least one other party worse off. A Pareto efficient outcome is an action which helps at least one person while harming no one. For instance, suppose you and I are eating pizza and there is one slice left. If I am sufficiently full but you are still hungry, there is a Pareto efficient outcome to be had. Now imagine instead you and I are hungry, and we need 8 slices of pizza to be fully satisfy. If you have 8 slices and I have only 1 (assuming we can't get anymore) this situation, although potentially unfair, is none the less still Pareto efficient — the only way I could be made better is by making you worse off.