Pareto Optimality

Abstract

The concept of Pareto optimality has occupied a major part in the discussion of welfare economics. Many theorems and optimality conditions are formulated with reference to Pareto optimality. This is so because the Pareto principle as a value judgement is widely acceptable, while other judgements involving interpersonal comparison of utility are more controversial. However, this does not mean that welfare economics has to be based on and only on the Pareto principle. Theorems and analysis which are not based on the Pareto principle or which are based on ‘extra-Paretian’ principles are possible and have been developed. Nevertheless, Pareto optimality has been and will continue to be one of the most important concepts in welfare economics and hence warrants careful study.