Questions tagged [pareto-efficiency]

An efficiency standard based on the idea that the most efficient outcomes are those where no individual can be made better-off without making at least one other worse-off.

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1answer
830 views

Why do externalities lead to a Pareto-inefficient outcome?

So we know that under a Pareto-inefficient outcome, there is room for Pareto improvement, i.e. making someone better off without hurting anyone. Assume that there is a drug company which is in ...
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1answer
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equilibrium, optimum, and decentralizing the optimum

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 ...
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About Lindahl equilibrium and Pareto Optimality

Let an economy with 20 consumers, one private good $x_2$ and one public good $x_1$. The public good is produced using the private good as input with the following technology $x_1=g(z)=z^{1/2}$, where $...
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485 views

Is the Convex Combination of Two Pareto Optimal Allocations Also Pareto Optimal?

I am studying for my qualifiers, and I ran into this question from a previous year's exam. $\textbf{Question:}$ Consider a two-consumer two-good pure exchange economy. Both preferences are locally ...
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1answer
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Sen's Liberal Paradox

Economist and philosopher Amartya Sen posited that no social system could guarantee: A minimal sense of freedom in social choice Pareto efficiency His original article can be found here. In his ...
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Market equilibrium and pareto efficiency

How can I prove that the equilibrum point $D(p)=S(p)$ is pareto efficient? The definition of pareto efficient: there is no way to make any person better off without hurting anybody else $D(p)$ is ...
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1answer
233 views

Productive Allocative Efficiency (Competitive Equilibrium)

I am doing an Intermediate Microeconomics class... in a 2*2*2*2 economy, I know that MRS (marginal rate of substitution) is supposed to be equal to MRTS (marginal rate of technical substitution) in ...
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1answer
294 views

Finding Pareto Optimality

Consider an exchange economy with two individuals and 2 commodities. The endowments of the commodities are 1 each. Which one of the following are Pareto Optimum. a. {$\frac{1}{2},\frac{1}{2},(\frac{1}...
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1answer
5k views

How to find corner Pareto efficient allocations

I have some troubles in understanding how to find Pareto efficient allocation that are on the frontier of the Edgeworth box. I mean, the interior ones, can be found using the equality $MRS_A = MRS_B$, ...
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1answer
71 views

Is a lack of any barriers to entry a necessary condition for ensuring pareto optimality is reached?

I understand that a competitive market is necessary for a market to equilibriate to a pareto optimal state, and that things like economies of scale, network effects, government restrictions, and ...
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How does Joseph Stiglitz and Greenwald explain why markets with imperfect information fail to have a pareto efficient equilibrium?

How does Joseph Stiglitz and Greenwald explain why markets with imperfect information fail to have a pareto efficient equilibrium? What premises do they use to come to that conclusion? For example, ...
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In modern economics, what are the least restrictive conditions shown to theoretically achieve Pareto Efficiency?

In researching this question, I've come across plenty of sources that regurgitate intro econ textbooks that say markets equilibrate to Pareto efficiency in conditions of perfect competition (where ...
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Quasilinear Utility: Pareto Optimality Implies Total Utility Maximization?

I read that if we have quasilinear utility for all consumers, then any pareto optimal allocation maximizes the sum of utility levels of all consumers. That is: $\textbf{What we know:}$ $$1)\quad u^i(...
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1answer
555 views

Under what conditions does market failure occur?

Edit: Is it possible to broadly categorize the ways in which market failures occur into relatively few categories? If so, what are they?
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Calculating price in a pure exchange economy

The problem is simple, I'm not really sure of my answer though. Consider an economy where there are two consumers and two goods: $$U_1(x_{11}, x_{21}) = x_{11}$$ $$U_2(x_{12}, x_{22}) = x_{22}$$ $...
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1answer
213 views

Constraints on a symmetric pareto allocation under uncertainty

I've been trying to figure out how the author came up with the constraints for this liquidity model in a textbook I'm reading. details: http://imgur.com/TpVjg4w $U = \pi_1u(C_1) + \pi_2u(C_2)$ where ...
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439 views

Fair and efficient allocation of “family goods”

Consider an exchange economy with two goods, e.g. home furniture (x) and electrical equipment (y). The interesting thing about these goods is that, when a family owns a bundle, all members of the ...
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1answer
532 views

Writing the core as the intersection of pareto efficient outcomes of all coalitions

I have been reviewing general equilibrium models and was trying to find an efficient method for computing the core of a cooperative game. I was taught this topic in a very poor way so I believe I ...
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860 views

Corner Solutions for Pareto Efficiency

I have been reviewing calculations to find walrasian equilibrium and pareto efficient allocations. Assume we are in an environment with two consumers, $A$ and $B$, and two goods, $x$ and $y$. From ...
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698 views

An economy with no Pareto-efficient envy-free allocations

In a famous paper from 1974, Hal Varian proved (in Theorem 2.3) that: In an economy with homogeneous divisible googs, if all agents have monotonic and convex preferences, then there exists an ...
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3answers
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Two quasilinear utility functions

Suppose there are two agents $\{A,B\}$ with the following utility functions: $U_A(x_A,y_A)=x_A+f(y_A)$ and $U_B(x_B,y_B)=x_B+g(y_B)$ $f$ and $g$ are strictly increasing and strictly concave. How do I ...
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Does Pareto-efficency take into account growth?

I'll try to state my question clearly:   For a given a "wealth" allocation Wt = (w1, w2, w3, ... ) for individuals I = (i1, i2, i3, ... ). And a distribution of D= (w1/|W|, w2/|W|, w3/|W|, ... ...
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1answer
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Pareto optimality when the allocations are restricted

This question is about Pareto optimality (PO) in cake-cutting. The basic definition is: an allocation is PO if there does not exist another allocation in which all players are weakly better off and ...
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1answer
746 views

Question on Pareto optimality problem

In an economy with two agents whose utility functions are $$ U_A(x_1,x_2) = \alpha \cdot x_1 + x_2 \hskip 20pt U_B(y_1,y_2) = y_1 \cdot y_2. $$ The given allocations are bundle (4,0) for A and bundle ...
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1answer
926 views

Competitive equilibrium in an exchange economy with lexicographic preferences [closed]

I am really stuck with this problem and not able to approach it. Any help will be much appreciated. I tried to draw edgeworth box with initial endowment point. I do know that for competitive ...
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666 views

Does a General Equilibrium here require Pareto Optimality?

There are two consumers $A$ and $B$, and two producers $X$ and $Y$. he consumers are endowed with labour(L) and capital(K) $L_A,K_A$, and $L_B,K_B$ respectively. The preferences of the two consumers ...
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896 views

What is the true source of dynamic(Pareto) inefficiency in OLG models?

This question confuses me for some time. My first impression is that Pareto sub-optimality is due to feature that old generations will consume everything without any incentive to trade. But after ...
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2answers
590 views

Pareto optimality and Externalities

Let's consider 5 farmers, each of them has 2 cows to put into the field. So every farmers can put 0,1 or 2 cows. I denote the three stategies by $q_i$, i=0,1,2. Now, the payoffs ( i.e. the amout of ...
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1answer
368 views

Converting word definitions of Pareto-Optimal into math symbols

I'd like to have a mathematical version of the following two definitions just because I remember symbols better than words. But I lack the math prowess to convert them from words to symbols. Can ...
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2answers
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Perfect complement preferences in an exchange economy

So I have an exam in a bit, I understand that to find the optimal choice you have to equate tangent of the two indifference curves. However, if the other indifference curve is a perfect complement, ...
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2answers
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Lee and Saez (2012): Pareto-Improvement?

I'm interested in the following quote that came up in this earlier answer. Second, when labor supply responses are along the extensive margin only, which is the empirically relevant case, the co-...