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Showing posts from October, 2011

Prompted Pareto improvements

I'm going to attempt to introduce a new concept here. It is a bit technical, but I'll try to provide background for non-economists first. I may indulge in some modelling to help me understand it better, so if that's not your thing, feel free to skip the equations and just read the words.

I'm also struggling for the name of this concept. The title of the post, "Prompted Pareto improvements" is a name I'm reasonably happy with, but catchier suggestions are welcome.

I'll start by explaining the idea of Pareto efficiency and a Pareto improvement. There's lots of information at the Wikipedia page if you'd like to know more.

Pareto efficiency is one of the standards that is often used in economic theory as something we should aspire to, because it is a standard almost nobody can disagree with. It means that we should consider any transaction, or change in an economic allocation, to be a good thing if it makes at least one person better off and nobody…