ABSTRACT
Instead of using the words “economic efficiency” in the chapter title I could have used “the Pareto criterion', which I have been using (and will continue to use) as a synonym for a potential Pareto improvement. For as I pointed out earlier, the academic economist's notion of economic efficiency invariably turns on this Pareto criterion. In short, an economic situation II is said to be more efficient than another economic situation I if the change from I to II is one that meets the Pareto criterion. And it is sufficient for this criterion to be met if the value of the collection of goods II (which is the most common interpretation of an “economic situation” II) is higher than that of collection I. For if collection II has a higher aggregate value than collection I there must be some division of this II collection that can yield every one a batch of goods higher in value than the batch he has in the original I collection. What we are to illustrate in this chapter is the seeming paradox that arises in the application of this apparently straightforward Pareto criterion.
