Pareto optimal

A Pareto optimal outcome is one such that no-one could be made better off without making someone else worse off.

The concept of Pareto optimality occurs in a number of areas of economics. The allocation of resources in an economy is Pareto optimal, often called Pareto efficient, if it is not possible to change the allocation of resources in such a way as to make some people better off without making others worse off.

A perfectly competitive market can be shown to deliver a Pareto optimal allocation of resources. Whether this is the most desirable allocation of resources is matter of a value judgement.

In game theory a Pareto optimal outcome is one in which no player could be better off without another becoming worse off. A Nash equilibrium, and other outcomes that can be predicted, may not be Pareto optimal. 

Copyright Graeme Pietersz © 2005-2016