What is the Pareto efficiency compensation criterion? Can you give me an example?
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Pareto efficient compensation criterion is a criterion that allocates compensation such that it is impossible to reallocate resources such that one person can be made better off without making at least one other person worse off.
For example, if we have two people Joe and Paul who both start with 100kronas of income and we have 2 alternatives: Increase Joe's income by 10 by taking from Paul, or give both of them extra benefit of 10, then the second alternative is Pareto efficient but the first is not.
