Pareto’s Welfare Criterion
Italian economist Wilfredo Pareto has laid down the conditions for mismanaging social welfare or for achieving a social optimum A Partisan optimum refers to a situation in which it is impossible to make anyone better off without making some be worse off For judging such a situation Pareto has enunciated a very simple and straight forward criterion thus: Any change which harms no one and which makes some people better off (in their own estimation) must be considered to be an improvement
For simplicity let us deal with a community in which there are only two persons X and Y. In Fig. 80.2 let us represent the utility of individual X along the horizontal xis and that of Y along the vertical axis. The Pareto criterion state that if we start off Rom a situation which is represented by a point like A then a policy change by the government is an improvement if it results in a move to any point like B or C which
lies to the right of A or above At B X is better off than at A with As well off as before whereas the move to C benefits Y without harming X and the move to D benefits both the persons.