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I'm reading a paper on parking: Anderson & de Palma, 2003, The economics of pricing parking.

The authors repeatedly refer to either 'decentralizing the optimum' or 'the optimum can be decentralized'....

Here is an example:

The optimum involves unequal treatment of equals in the sense that different individuals get different utilities at the optimum. Those who are allocated to park closer to the [central business district] get higher utility than those who park further away. The optimumm can be decentralized via pricing of parking. Since parking is more desirable closer to the center, the optimum parking tariff increases with closeness to the CBD in order to counteract this effect and reduce the over-congestion that is more pronounced closest to the CBD. We next derive the optimum parking tariff.

Q1: In general in economics literature and/or in the context of this paper, is "optimal" generally accepted as referring to Pareto efficiency?

Q2: What does it mean to "decentralize the optimum" ?

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Q1 Optimal usually means one of two things:

  • Pareto optimal (there's no way to change the outcome such that everyone is at least as well-off, but someone is strictly better-off).
  • Optimal in the utilitarian sense (we maximise the sum of everyone's profit/utility).

If utility/profit is quasilinear then the two concepts coincide.

This paper appears to be using the utilitarian standard: the optimum is the allocation that minimises the sum of everyone's costs (which, in this case, are the time spent travelling and parking).


Q2 To understand what is meant by decentralisation, it is useful to first know what we mean by centralisation. We say that a decision is centralised if there is one agent (often called a "social planner") who makes all of the decisions and imposes them on society.

We know from experience that governments are not very good at centrally planning things (cf. the USSR). Thus, an interesting question is whether we can set up a market, system of prices, or other kind of mechanism such then we can leave each individual to his/her own devices and still end up with the optimal outcome (such as how we get the efficient outcome under perfect competition, without any kind of central planner).

When everyone is left to their own devices like this, the market is said to be decentralised. We say the optimum is decentralised if we find a way to decentralise the market such that the end result is optimal.

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  • $\begingroup$ thank you. Is Pareto efficiency synonymous with Pareto optimal? if not should I ask this in a separate question? $\endgroup$ – orson Oct 23 '16 at 1:39
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    $\begingroup$ @orson Yes, if the market is at a Pareto optimum then the outcome is said to be 'Pareto efficient'. $\endgroup$ – Ubiquitous Oct 23 '16 at 7:23

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