Notes on Pareto Efficiency Lecture

Introduction

• Lecturer: B. Schipp, Associate Professor of Economics at University of California, Davis
• Topic: Pareto Efficiency

Key Concepts

Definition of Pareto Efficiency

• Allocation is considered Pareto Efficient if no further improvements can be made without making someone worse off.
• A Pareto Improvement occurs when a reallocation makes at least one individual better off without making anyone else worse off.

Historical Context

• Vilfredo Pareto:
  • Italian economist (1848-1923)
  • Also a statistician and engineer
  • Known for contributions to economics and welfare theory

Understanding Allocations

• An allocation is said to be Pareto Efficient if:
  • It is impossible to improve one person's situation without worsening another's.
• Example given:
  • If Bob receives a chocolate bar, we assess if the allocation can be improved.

Application of Pareto Efficiency

• To verify Pareto Efficiency:
  • Check if any reallocation can make one individual better off without harming another.
• Many allocations can be Pareto Efficient but may not be unique.

Conclusion

• Takeaway: Multiple allocations can satisfy the condition of Pareto Efficiency, highlighting the complexity in welfare economics.

• Thank you for attending the lecture!