Fabrizio Esposito

Pareto Efficiency and Allocative Efficiency

  • Abstract

Informations and abstract

Keywords: Law and Economics; Allocative Efficiency; Pareto Efficiency; Kaldor-Hicks Efficiency.

The article analyses the conceptual relation between Pareto efficiency ("at lease so¬meone is better-off and no one is worse-off") and allocative efficiency ("consumer welfare is maximized"). In particular, it points out that voluntary exchanges are not always Pareto efficient for the contracting parties and that not all Pareto efficient exchanges are allocative efficient. The latter result highlights a tension in the conceptual foundations of mainstream economic analysis of law: on the one hand, Pareto efficiency is generally considered an unsustainably strict normative criterion and Kaldor-Hicks efficiency is preferred; on the other, the allocative efficiency of markets is praised.

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Article first page