Pareto violations of parliamentary voting systems

It has been known for a long time that many binary voting rules can select a Pareto dominated outcome, that is an outcome such that there exists some other alternative which is preferred by every voter. In this paper, we show that some of these rules can select an outcome Pareto dominated in a much stronger sense. Furthermore, our main results are concerned with the evaluation of the likelihood of Pareto dominated outcomes under four social choice rules commonly used in Parliaments or in committees. Given a set of four alternatives and a set of n individuals, we assume anonymous profiles and using analytical methods we compute the proportion of profiles at which the Pareto criterion is violated. Our results show that one should not be especially worried about the existence of the possibility as such. We are grateful to two anonymous referees for very helpful remarks and suggestions.     

Equilibrium Selection inn-Person Coordination Games

This paper investigates several approaches to equilibrium selection and the relationships between them. The class of games we study aren-person generalized coordination games with multiple Pareto rankable strict Nash equilibria. The main result is that all selection criteria select the same outcome (namely the risk dominant equilibrium) in two-person games, and that most equivalences break for games with more than two players. All criteria select the Pareto efficient equilibrium in voting games, of which pure coordination games are special cases.Journal of Economic LiteratureClassification Numbers: C70, C72, D82.     

The Discretionary Economy

Some critics allege that many if not most economists are subject to "Panglossian tendencies" — that is, they are too quick to make excuses for apparently dysfunctional aspects of the status quo. This paper examines theoretical welfare economics as a possible exemplar of "Panglossian tendencies." A major focus is on the absence from both the pedagogic and the professional literatures of two key concepts bearing upon the evaluation of Pareto efficiency and social welfare maximization as competing criteria of economic policy analysis: the "isowelfare function" and the "supra-welfare region." These concepts are explicated herein using the familiar Edgeworth-Bowley box diagram illustrating the twoindividual, two-good pure exchange model. A higher level of awareness and appreciation among economists of these concepts might serve the beneficial purpose of downgrading the perceived significance of Pareto efficiency as an operational criterion of economic performance.     

Two-sided altruism, Lindahl equilibrium, and Pareto optimality in overlapping generations models

Summary. This paper extends the Samuelsonian overlapping generations general equilibrium framework to encompass a variety of altruistic preferences by recasting it into a Lindahl equilibrium framework. The First and the Second Welfare theorems hold for Lindahl equilibrium with respect to the Malinvaud optimality criterion but not with respect to the Pareto optimality criterion. A complete characterization of Pareto optimal allocations is provided using the Lindahl equilibrium prices.Received: 2 October 2003, Revised: 13 September 2004, JEL Classification Numbers: D51, D62, D64, C62.An earlier draft of the paper was prepared for presentation at the Sixth World Congress of the Econometric Society, 1990, Barcelona, Spain. Much of this work was done when I was at Yale University and University of California-San Diego. I am grateful to an anonymous referee of this journal and to Don Brown, Vince Crawford and Joel Sobel for many insightful comments and encouragements on an earlier draft of the paper.     

Pareto optimality in coalition formation

A minimal requirement on allocative efficiency in the social sciences is Pareto optimality. In this paper, we identify a close structural connection between Pareto optimality and perfection that has various algorithmic consequences for coalition formation. Based on this insight, we formulate the Preference Refinement Algorithm (PRA) which computes an individually rational and Pareto optimal outcome in hedonic coalition formation games. Our approach also leads to various results for specific classes of hedonic games. In particular, we show that computing and verifying Pareto optimal partitions in general hedonic games, anonymous games, three-cyclic games, room-roommate games and B-hedonic games is intractable while both problems are tractable for roommate games, W-hedonic games, and house allocation with existing tenants.     

An efficiency characterization of plurality social choice on simple preference domains

Summary. We consider a model of social choice dealing with the problem of choosing a subset from a set of objects (e.g. candidate selection, membership, and qualification problems). Agents have trichotomous preferences for which objects are partitioned into three indifference classes, goods, bads, and nulls, or dichotomous preferences for which each object is either a good or a bad. We characterize plurality-like social choice rules on the basis of the three main axioms, known as Pareto efficiency, anonymity, and independence.Received: 29 August 2003, Revised: 3 June 2004, JEL Classification Numbers: D70, D71, D72.Biung-Ghi Ju: I am grateful to William Thomson and Jianbo Zhang for their helpful comments and discussions. I also thank Brandon Dupont, the participants in seminars at Iowa State University, University of Kansas, and the Midwest Theory Meeting at University of Notre Dame. I thank an anonymous referee for detailed comments and suggestions that were very helpful in simplifying the proof of Theorem 1 and in revising the paper.     

Equilibrium without prices: A central issue in pareto’smanuale

Pareto in hisManuale asserts that the price concept is inessential for the notion of equilibrium. This view deeply contrasts with the Arrow-Debreu’s dominant approach of Walrasian derivation. This identifies general equilibrium with a system of prices at which the decentralized choices of economic agents match. In this paper the author justifies and gives substance to the Paretian point of view. The differential merit of the Paretian approach is its independence of assumptions of price taking and of convexity in preferences and in production possibility sets. These assumptions are necessary, in the walrasian framework, only to maintain the centrality of prices, but they clash against the request of realism. (JEL:BOO, D51, D60)     

我国城市规模分布Pareto指数测算及影响因素分析

This paper estimates the Pareto exponent of the city size (population size and economy size) distribution, all provinces, and three regions in China in 1997, 2000 and 2003 by OLS, comparatively analyzes the Pareto exponent cross section and times, and empirically analyzes the factors which impacts on the Pareto exponents of provinces. Our analyses show that the size distributions of cities in China follow the Pareto distribution and are of structural features. Variations in the value of the Pareto exponent of city population size distribution are significantly explained by industrialization, industry structure and regional transportation infrastructure, and variations in the value the Pareto exponents of city economy size distribution are significantly explained by industrialization and regional transportation infrastructure. __________ Translated from Shuliang Jingji Jishu Jingji Yanjiu 数量经济技术经济研究 (The Journal of Quantitative & Technical Economics), 2007, (4): 43–52     

Theory of negative consumption externalities with applications to the economics of happiness

This paper investigates the problem of obtaining Pareto efficient allocations in the presence of negative consumption externalities. In contrast to the conventional wisdom, we show that even if consumers’ preferences are monotonically increasing in their own consumption, one may have to dispose of resources to achieve Pareto efficiency when negative consumption externalities exist. We provide characterization results on destruction both for pure exchange economies and for production economies. As an application, our results provide an explanation to Easterlin’s paradox: average happiness levels do not increase as countries grow wealthier. We thank an anonymous referee, Xiaoyong Cao, Li Gan, and Tapan Mitra for helpful comments and suggestions that improved the exposition of the paper. The first author thanks the National Natural Science Foundation of China and Private Enterprise Research Center at Texas A&M University for financial support.     

Patterns of regional growth in Yugoslavia, 1952–83

This paper considers the pattern of growth of less developed regions (LDRs) vs. more developed regions (MDRs) in Yugoslavia in the period 1952–1983. It evaluates the growth using the three possible policy-makers' criteria: the Pareto criterion (rate of growth of both LDRs and MDRs should increase), the Rawls criterion (rate of growth of MDRs may increase so long as it raises that of LDRs), and the Verkhovensky criterion (positive difference between the rate of growth on LDRs and MDRs should be maximized). The pattern of growth in Yugoslavia is found to have changed after major economic and political decentralization in 1965: it is superior to the pattern in the previous period only in the Verkhovensky sense.     

Beliefs and Pareto Efficient Sets: A Remark

We show that, in a two-period economy with uncertainty in the second period, if an allocation is Pareto optimal for a given set of beliefs and remains optimal when these beliefs are changed, then the set of optimal allocations of the two economies must actually coincide. We identify equivalence classes of beliefs, giving rise to the same set of Pareto optimal allocations. Journal of Economic Literature Classification Numbers: D51, D61.     

Existence and optimality of oligopoly equilibria in linear exchange economies

Summary. We consider a linear exchange economy and its successive replicas. We study the notion of Cournot-Walras equilibrium in which the consumers use the quantities of commodities put on the market as strategic variables. We prove that, generically, if the number of replications is large enough but finite, the competitive behaviour is an oligopoly equilibrium. Then, under a mild condition, which may be interpreted in terms of market regulation and/or market activity, we show that any sequence of oligopoly equilibria of successive replica economies converges to the Walrasian outcome and furthermore that every oligopoly equilibrium of large, but finite, replica is Pareto optimal. Consequently, under the same assumptions on the fundamentals of the economy, one has an asymptotic result on the convergence of oligopoly equilibria to the Walras equilibrium together with a generic existence result for the Cournot-Walras. Received: June 20, 2002; revised version: November 20, 2002 RID="*" ID="*" Part of this paper was written while the second author was visiting the Universidad de Vigo. The support of the department of mathematics is gratefully acknowledged. Correspondence to: J.M. Bonnisseau     

Economists,social reformers,and prophets: a feminist critique of economic efficiency

This article examines the concept of Pareto optimality, bringing to light some of its implicit assumptions about the nature of human agency, work, and gender. It explores the androcentric character of the economic agent and the gendered nature of neoclassical models in relation to the historical development of the concept of economic efficiency during the late 1930s. The thrust toward the development of Pareto optimality as a scientific criterion of economic welfare was a response to the methodological tensions between the clearly political nature of economics and the scientific aspirations of economists. An examination of the debates from this period illuminates some of the values that became embedded in neoclassical economics, and which are now hidden by the masks of mathematics and abstraction.     

A reformulation of the foundations of welfare economics

Neoclassical welfare economics takes an outcome-oriented approach that uses Pareto optimality as its benchmark for welfare maximization. When one looks at the remarkable improvements in economic welfare that have characterized market economies, most of those improvements in welfare have been due to economic progress that has introduced new and improved goods and services into the economy, and innovations in production methods that have brought costs down, leading to higher real incomes. Pareto optimality is only peripherally related to actual economic welfare, and no economist would argue that people are materially better off today than a century ago because the economy is closer to Pareto optimality. After analyzing the actual factors that lead to improvements in welfare, this paper suggests a reformulation of the foundations of welfare economics to replace the almost irrelevant outcome-oriented concept of Pareto optimality as the benchmark for evaluating welfare with a process-oriented benchmark based on factors that generate economic progress. The paper then explores some implications of this reformulation.

Policy Discrimination with and without Interpersonal Comparisons of Utility

Can the Pareto criterion guide policymakers who do not know the true model of the economy? If policymakers specify ex ante preferences for agents, then Pareto improvements from a distorted status quo are usually possible, and with more commodities than states, one can implement almost every Pareto optimum. Unlike the standard second welfare theorem, planners cannot dictate allocations: agents must trade. Unfortunately ex ante preferences impose interpersonal comparisons. If policymakers merely aim to maximize some social welfare function then optimal policies form an open set; hence small changes in the environment do not necessitate any policy response. Planners with symmetric information about agents can sometimes intervene without making interpersonal comparisons.     

Correcting for the Missing Rich: An Application to Wealth Survey Data

It is a well‐known criticism that if the distribution of wealth is highly concentrated, survey data are hardly reliable when it comes to analyzing the richest parts of society. This paper addresses this criticism by providing a general rationale of the underlying methodological problem as well as by proposing a specific methodological approach tailored to correcting the arising bias. We illustrate the latter approach by using Austrian data from the Household Finance and Consumption Survey. Specifically, we identify suitable parameter combinations by using a series of maximum‐likelihood estimates and appropriate goodness‐of‐fit tests to avoid arbitrariness with respect to the fitting of the Pareto distribution. Our results suggest that the alleged non‐observation bias is considerable, accounting for about one quarter of total net wealth in the case of Austria. The method developed in this paper can easily be applied to other countries where survey data on wealth are available.     

International organizations and arrangements: Pivotal countries and manipulations

A problem of making an investment in a large developing or transition economy by an international organization is considered in this paper. We design a dominant strategy (the truth-telling) mechanism in a decision making problem where both Pareto optimality and optimization of an international organization's welfare are achieved. We determine that if there are pivotal countries within an international organization, necessary assumptions made for such a mechanism to work cannot be all satisfied. The mere presence of pivotal countries within an international organization is an empirical question, but casual empiricism suggests their existence.     

A Measure Of The Trade‐Off Between Responsiveness and Nondictatorship for Arrovian Social Welfare Functions

If individuals are never indifferent between distinct alternatives then for any transitive‐valued social welfare function satisfying IIA, and any fraction t, either the set of pairs of alternatives that are socially ordered without consulting more than one individual's preferences comprises at least the fraction t of all pairs, or else the fraction of pairs that have their social ordering determined independently of everyone's s preferences exceeds, or is very close to, 1 ?t. The Pareto criterion is not imposed. (There is also a version of this result for the domain of preferences that admit indifference.)     

Recursive contracts,lotteries and weakly concave Pareto sets

Marcet and Marimon (1994, revised 1998, revised 2011) developed a recursive saddle point method which can be used to solve dynamic contracting problems that include participation, enforcement and incentive constraints. Their method uses a recursive multiplier to capture implicit prior promises to the agent(s) that were made in order to satisfy earlier instances of these constraints. As a result, their method relies on the invertibility of the derivative of the Pareto frontier and cannot be applied to problems for which this frontier is not strictly concave. In this paper we show how one can extend their method to a weakly concave Pareto frontier by expanding the state space to include the realizations of an end of period lottery over the extreme points of a flat region of the Pareto frontier. With this expansion the basic insight of Marcet and Marimon goes through – one can make the problem recursive in the Lagrangian multiplier which yields significant computational advantages over the conventional approach of using utility as the state variable. The case of a weakly concave Pareto frontier arises naturally in applications where the principal?s choice set is not convex but where randomization is possible.     

Choice, preference and rationalizability in pareto’s theory of economic behavior

Pareto initiated the shift of economic theory from utility/preference to choice in order to fill a gap between theoretical and empirical economics. His suggestions for an empirically-oriented theory of choice were to be developed decades later in the literature on revealed preference and on the conditions of equivalence between preference-based and choice-based axiomatic structures. In the process, however, substantial departures from Pareto’s implicit design of the situation of choice were introduced. In this paper, the conditions for the rationalizability of choice are re-defined so that they fit the type of situation that Pareto had in mind. The result is that the main consistency axioms of standard choice theory have to give way to a different combination of axioms that concern decisiveness as well as consistency. (JEL:B13, D01, D11).