Pareto principle

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A principle of welfare economics derived from the writings of Vilfredo Pareto, which states that a legitimate welfare improvement occurs when a particular change makes at least one person better off, without making any other person worse off. A market exchange which affects nobody adversely is considered to be a ‘Pareto-improvement’ since it leaves one or more persons better off. ‘Pareto optimality’ is said to exist when the distribution of economic welfare cannot be improved for one individual without reducing that of another.

The principle rests on three assumptions: that each individual is the best judge of his or her own welfare; that social welfare is exclusively a function of individual welfare; and that if one individual's welfare is augmented, and nobody's is reduced, then social welfare has increased. Since these assumptions are empirically questionable, and probably embody value-judgements about well-being and satisfaction, they are somewhat controversial. It has also been argued that they constitute a rather weak basis for welfare judgements, since they explicitly forbid interpersonal comparisons, are concerned entirely with the subjective choices of individuals, and privilege the position occupied by the status quo (since any move from the status quo which was vetoed by one person would not be considered a Pareto-improvement). Most sociologists object to Paretian welfare economics because of its silence on the initial distribution of resources.

Subjects: Social Sciences.

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