Good Sex is like Efficiency

Good Sex is like Efficiency - Efficiency is like "good"...

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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? 1 1 Pareto, 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.
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Efficiency is like “good” sex: more is better, except when its not, Edward Morey, February 24, 2009 3 This raises the important question of how one might decide whether one inefficient allocation is more efficient than another inefficient allocation. I am not sure all economists would agree on how to do this, some might say efficiency is like pregnancy: one is or one is not, and there “ain’t no in-between.” Consider two allocations of resources: allocation A with lots of steaks and flat-screen TVs and allocation B with less of that stuff but with more parks and cleaner air. Shifting from B to A would make some individuals better off and some worse off. Now consider how much those who would be better off would pay, in the common unit of exchange, to shift from B to A, and then consider how much the losers would be willing to pay to stop the shift. If the gain to the gainers, in terms of the units of exchange, is greater than the loss to the losers, one might define allocation A as more efficient than allocation B. 2 Not that changes that make some better off without making any others worse are efficiency increasing. Economists like these kinds of changes (think they are “good” and “right”). We will use this as a simple definition of
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This note was uploaded on 08/31/2009 for the course ECON 4999 taught by Professor Barry,poulson during the Spring '07 term at Colorado.

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Good Sex is like Efficiency - Efficiency is like "good"...

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