Efficiency is like “good” sex: more is better, except when its not, Edward Morey, February 24, 2009 1 Efficiency is like “good” sex: more is better, except when its not Edward Morey, February 24, 2009 Vilfredo Pareto(1848-1923) – did he have good sex?11Pareto, a father of welfare economics, eventually became disillusioned with economics and gave it up. I won’t be defining good sex; I will be defining efficiency
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Efficiency is like “good” sex: more is better, except when its not, Edward Morey, February 24, 2009 2 Assume we all agree on who is and who is not a member of society. According to economists, an allocation of resources is efficient if it impossible to change the allocation so as to make one or more members of society better off without making any other members worse off. So, if an allocation of resources is inefficient, there is the potential for a free lunch: it is possible to reallocate resources in a way that makes some better off and no one worse off. When an allocation is efficient, there is no longer this potential. Efficiency sounds like a good thing – who wouldn’t want a free lunch? There can be an infinite number of allocations that are efficient. Draw a utility frontier for two individuals. Allocations are either efficient or inefficient, and most, in the real world, are inefficient. My experience is that most undergraduate economics majors can recite the above definition, but have only a vague notion of what it means.