Pareto Improvement


Pareto efficiency or Pareto optimality is a state of allocation of resources from which it is impossible to reallocate so as to make any one individual or preference criterion better off without making at least one individual or preference criterion worse off. The concept is named after Vilfredo Pareto, Italian engineer and economist, who used the concept in his studies of economic efficiency and income distribution. The concept has been applied in academic fields such as economics, engineering, and the life sciences.

Pareto Improvement

What is a ‘Pareto Improvement’

A pareto improvement is a neoclassical economics, an action done in an economy that harms no one and helps at least one person. The theory suggests that Pareto improvements will keep adding to the economy until it achieves a Pareto equilibrium, where no more Pareto improvements can be made.

Explaining ‘Pareto Improvement’

In real-world economics, the Pareto improvement is often replaced by the Kaldor-Hicks improvement, of which Pareto improvements are a subset. A Kaldor-Hicks improvement is associated with cost-benefit improvements and is related in terms of actual dollars.

Further Reading

  • Pareto-improving social security reform when financial markets are incomplete!? – [PDF]
  • Intergenerational risk-sharing via social security when financial markets are incomplete – [PDF]
  • Pareto-improving campaign finance policy – [PDF]
  • Pareto-optimality of authentic information – [PDF]
  • Sensible Policy Tool for Pareto Improvement: Capital Controls, A – [PDF]
  • Analysis of Conditions of Institution Pension System's Pareto Improvement [J] – [PDF]
  • Pareto improvement and joint cash management optimisation for banks and cash-in-transit firms – [PDF]
  • Pareto improvement and agenda control of sequential financial innovations – [PDF]
  • Pension reform, financial market development, and economic growth: preliminary evidence from Chile – [PDF]
  • Pareto improving financial innovation in incomplete markets – [PDF]