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.