The Problematics of the Pareto Principle

Abstract:     
The Pareto principle is often considered self-evident, particularly by economists. On close examination, however, it is much more problematic than is commonly believed. Preference satisfaction is only imperfectly related to values such as individual welfare and autonomy. Moreover, preferences can change during transactions or because of shifts in legal regimes, presenting knotty conceptual difficulties. Finally, complete adherence to the Pareto principle may be incompatible with other, equally appealing ethical standards. As Sen showed, the Pareto principle is inconsistent with at least some forms of libertarianism. More recently, Kaplow and Shavell have shown that if we rigidly adhere to Pareto, we thereby foreclose the possibility of giving any independent normative weight to values such as fairness or human rights. Thus, appealing as it may be, rigid adherence to Pareto may come at too high a cost. Given these various qualifications on the scope and appeal of the Pareto principle, it is best regarded as a useful rule of thumb rather than a bedrock ethical imperative.

Number of Pages in PDF File: 40

Keywords: Pareto principle, welfare economics

JEL Classification: D6, K0

working papers series