Version: v1, Published online: 1998
Retrieved April 20, 2021, from https://www.rep.routledge.com/articles/thematic/pareto-principle/v-1
A social state is said to be Pareto-efficient when there is no feasible alternative to it in which at least one individual is better off while no individual is worse off. The Pareto principle tells us to move from Pareto-inefficient to Pareto-efficient states. Suppose a large basket of fruit is shared among a group in some way or another – one apple, two peaches, a dozen cherries each, for instance. If the fruit can be exchanged so that at least some people get more enjoyment from what they have, and no one gets less, the Pareto principle instructs us to do so; indeed, it instructs us to carry on exchanging until no more improvements of this kind are possible.
The Pareto principle gets its name from the Italian economist Vilfredo Pareto (1848–1923), who showed that when a competitive market reaches an equilibrium, the outcome is Pareto-efficient, or a ‘Pareto-optimum’ (Pareto 1906). Pareto believed that valid interpersonal comparisons of utility are impossible, and so rejected the utilitarian view that a society is efficient when it maximizes aggregate utility. But each person could judge whether they were better off in state S1 or state S2, and so Pareto concluded that if everyone preferred S2 social welfare must be greater in S2, whereas if some preferred S1 and some S2, no such judgment could be made.
The Pareto principle has a weaker and a stronger form. The weaker holds that we should choose S2 in preference to S1 when everybody judges that they are better off in S2; the stronger holds that we should choose S2 when nobody judges that S1 is better, and at least one person judges that S2 is better. The weaker version requires that everyone gain if the change is to be a Pareto improvement; the stronger version requires only that some should gain and nobody should lose.
For many economists the Pareto principle seems to be self-evidently rational. How can we settle for a state of affairs when there is a feasible alternative that improves the position of some but worsens that of no one? The problem is rather that, seen as a criterion of efficiency, the principle is still too weak. In the real world there are likely to be many Pareto-efficient states to choose between, but here the principle gives us no guidance. If in moving from S1 to S2 many badly-off people gain but a few well-off people lose, we might think there is a gain in overall efficiency. But we cannot make such a judgment using the original Pareto principle alone (see Economics and ethics §3).
Philosophers have been less certain that the principle is a requirement of practical rationality. Two kinds of questions have been raised. Suppose that S1 represents a state of affairs that is distributively just by some criterion – for instance, each person enjoys an equal level of welfare. If in S2 some people are better off than in S1 but the criterion of justice is violated – welfare levels are no longer equal – it may not be irrational to choose Pareto-inefficient S1 over Pareto-efficient S2.
Second, Sen (1982) has argued that the Pareto principle may conflict with the liberal principle that each person should decide matters falling in their private domain, such as which position they sleep in. If people have strong ’meddlesome preferences’ – that is, they are deeply concerned about what goes on in other people’s personal domains – there will be cases in which the Pareto principle selects a social state that the liberal principle would exclude. This issue has now generated a substantial body of literature suggesting different ways of avoiding Sen’s paradox.
Miller, David. Pareto principle, 1998, doi:10.4324/9780415249126-S097-1. Routledge Encyclopedia of Philosophy, Taylor and Francis, https://www.rep.routledge.com/articles/thematic/pareto-principle/v-1.
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