7.3.3—Pareto optimality

An allocation is Pareto efficient when there is no feasible change that benefits at least one person without harming anyone else. It is a criterion about possible improvements, not a judgement that the outcome is fair.

Many unequal allocations can be Pareto efficient because changing them would hurt someone. Pareto efficiency also says nothing about who has power, basic needs or equal opportunities.

A redistribution from a wealthy person to a poor person may improve welfare but fail the strict Pareto test because the donor is worse off, even if society regards the change as fair.

Pareto efficient does not mean socially optimal, equal or morally desirable; it only rules out a particular kind of mutually non-harmful improvement.