Glamor Economics

Chapter 75

Chapter 11 Section 2 The best state that no one is willing to change - Pareto Optimum

Pareto optimality refers to a state of resource allocation in which it is impossible to make some people better off without making anyone worse off.Once this ideal has been achieved, to make some people better off, someone else must be made worse off.In other words, what you gain comes at the expense of others.

During the Spring and Autumn Period, the State of Lu was very weak, and many people from the State of Lu became slaves in other countries.In order to revitalize the country, the king of the state of Lu promulgated such a law: If a Lu person meets a compatriot who has been enslaved in other countries, he can redeem the slave first, and the state will pay the ransom after returning to the country.

Confucius had a student, Zi Gong, whose family was relatively wealthy. He had redeemed Lu people who had been enslaved many times, and he did not seek reimbursement from the king afterwards.Zigong felt that he was exercising what his teacher called benevolence and righteousness, and he was very proud of it.

Later, Confucius learned about this and criticized Zigong: "I know that you are pursuing nobleness and you are not short of money, but you must take this compensation. Now you pay money to save people and are praised by the society, but from now on , when others meet Lu people who have been reduced to slaves in other countries, he will think whether he should go to redeem people? If he redeems people, will he go to ask the king for money after returning to the country? Not to go to the king , I will lose a lot of money; if you go to the king, others will use you to laugh at him. In this way, they will pretend not to see the Lu people who are slaves again. Save the roots of the Lu people who have been reduced to slavery!" Zigong felt ashamed after hearing what the teacher said.

On another occasion, another student of Confucius saw someone fall into a river, so he rescued the victim ashore.In order to express his gratitude, the rescued person gave the student of Confucius a cow, and the student accepted it.Confucius praised this student's behavior greatly, because it will inspire more people to save others.

Confucius' behavior coincides with the principles of economics, and these two events reflect the Pareto efficiency criterion in economics.The Italian economist Pareto once proposed the Pareto efficiency criterion for the optimal allocation of resources: the efficiency of the economy is reflected in the allocation of social resources to improve people's conditions, mainly depending on whether the resources have been fully utilized.If resources have been fully utilized, any improvement must be at the expense of others.

The original system of the State of Lu has actually produced very good results. People began to actively redeem compatriots who were reduced to slavery. The changes made by Zigong are likely to destroy this enthusiasm, thus making the existing state of Lu There is a problem with the system.When someone fell into the river, people actively rescued it has not yet formed a certain atmosphere, so we need to encourage it at this time.

But on the whole, the best allocation mode of resources should be that everyone in the society achieves Pareto optimality.In a sense, we can think that Pareto optimality is an ideal way to balance fairness and efficiency.Conversely, if it is also possible to improve one person's situation without harming others, we can consider resources to be underutilized, and we cannot say that Pareto optimality has been achieved.

[links to related words]

A Pareto improvement is a change that makes at least one person better off without making anyone worse off.On the one hand, Pareto optimality refers to the state where there is no room for Pareto improvement; on the other hand, Pareto improvement is the path and method to achieve Pareto optimality.Pareto optimality is the "ideal kingdom" of fairness and efficiency.

Allocative efficiency refers to an economic situation, that is, when an economy reaches this situation, it is no longer possible to increase the utility or satisfaction of one person without reducing the utility or satisfaction of others through means such as restructuring or trade.In a sense, perfect competition can lead to allocation efficiency, which is also called Pareto efficiency.

(End of this chapter)