The Pareto efficiency

Discussion in 'Economy' started by Truthmatters, Feb 28, 2011.

  1. Truthmatters
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    Pareto efficiency - Wikipedia, the free encyclopedia



    An economic system that is not Pareto efficient implies that a certain change in allocation of goods (for example) may result in some individuals being made "better off" with no individual being made worse off, and therefore can be made more Pareto efficient through a Pareto improvement. Here 'better off' is often interpreted as "put in a preferred position." It is commonly accepted that outcomes that are not Pareto efficient are to be avoided, and therefore Pareto efficiency is an important criterion for evaluating economic systems and public policies.

    If economic allocation in any system is not Pareto efficient, there is potential for a Pareto improvement—an increase in Pareto efficiency: through reallocation, improvements to at least one participant's well-being can be made without reducing any other participant's well-being.

    In the real world ensuring that nobody is disadvantaged by a change aimed at improving economic efficiency may require compensation of one or more parties. For instance, if a change in economic policy dictates that a legally protected monopoly ceases to exist and that market subsequently becomes competitive and more efficient, the monopolist will be made worse off. However, the loss to the monopolist will be more than offset by the gain in efficiency. This means the monopolist can be compensated for its loss while still leaving an efficiency gain to be realized by others in the economy. Thus, the requirement of nobody being made worse off for a gain to others is met. In real-world practice compensations have substantial frictional costs. They can also lead to incentive distortions over time since most real-world policy changes occur with players who are not atomistic, rather who have considerable market power (or political power) over time and may use it in a game theoretic manner. Compensation attempts may therefore lead to substantial practical problems of misrepresentation and moral hazard and considerable inefficiency as players behave opportunistically and with guile.
     
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  2. Truthmatters
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    Its also called the 20 80 rule.

    an economy can have 20% of the people holding 80 percent of the wealth without causing harm to anyone.

    You get under the 20 % or over the 80 % and someone is being harmed.
     
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  4. skeptic
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    This may be difficult for you to grasp, but you are presenting a circular argument. Since the definition of a Pareto constant defines that "harm" occurs merely because 20% of the people own 80%+ of all wealth, the "harm" that occurs is "that 20% of the people own 80%+ of the wealth". Circular argument.

    It's like saying that if a black man became president that would be "bad", and then when a black man does get elected saying "see, it is bad".
     
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    you have made absolutely no sense.

    Did you even read anything about the 20 80 rule ?
     
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    I knew you would have difficulty getting it. It is a circular argument.
     
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    The 20 80 purpotions were determined by the examination of the worlds historical data.

    It was not radomly plucked out of thin air
     
  9. dilloduck
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    I don't see a hell of a lot of bumper stickers saying " Down with the middle class "
    Who exactly is intentionally targeting the middle class and why ?
     
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    The middle class has been shrinking.


    The wealth has been concentrating in fewer and fewer hands which will lead to an uncompetative market leaving it stalled.


    If you balence back to this economic rule you cant reinvigorate capitalism.

    it will stall and you will see merely further move to monoplies.
     

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