what is a pareto improvement 
under the rubric of neoclassical economic theory a pareto improvement occurs when a change in allocation harms no one and helps at least one person given an initial allocation of goods for a set of persons the theory states that pareto improvements can keep enhancing value to an economy until it achieves a pareto optimum where no more pareto improvements can be made understanding pareto improvementnamed after vilfredo pareto 1848 1923 an italian economist and political scientist also renowned for the pareto principle a pareto improvement is an action that makes at least one person better off without making anyone worse off 12given an initial allocation of goods or resources for a set of individuals if a change in resources benefits at least one person while harming no one else a pareto improvement has been made these improvements can continue to a point where the allocation is pareto efficient also known as pareto optimal 2 at a pareto optimum no more changes can be made to the allocation without making someone worse off 3the goal of pareto improvements in the general economy is to create a net benefit to society that also does not harm any member of the society if a pareto improvement is possible it always makes sense to do colloquially a pareto improvement is also known as a no brainer based on the supposition that only a person with no brain would not take a pareto improvement pareto in practiceaside from applications in economics the concept of pareto improvements can be found in the fields of life sciences engineering and any academic discipline where trade offs are simulated and studied to determine the number and type of reallocation of resource variables necessary to achieve pareto equilibrium in the business world factory managers may run pareto improvement trials in which for example they reallocate labor resources to try to boost the productivity of assembly workers without decreasing the productivity of the packing and shipping workers if such an adjustment to production can be found then the business should always make it failing to do so is like leaving money on the table consumers can also consider pareto improvements to the mix of goods that they consume if some change to a consumer s behavior will allow them to enjoy more of some good without sacrificing anything else then such a move would be a pareto improvement for that consumer the consumer literally gets something for nothing by making a pareto improvement pareto critiquepareto improvements along with pareto efficiency are criticized in the realm of political economy because they are alleged not to address issues of fairness among different groups of people pareto analysis can not distinguish between two different moves that are both pareto improvements but that favor different individuals or groups pareto improvements inform only steps to reach an efficient state not necessarily an equitable one based on the other ethical values of the decision makers especially if their goal is to do harm to some individuals or segments of the population in the name of equity for example if by some reallocation of society s resources the wealthy class of a society is made better off without hurting the poor then a pareto improvement has been made similarly a change that can make the poor better off without making the rich worse off would also be a pareto improvement however if policymakers goal is to favor one group over another or to harm or punish certain classes or individuals in the society then pareto analysis has little to say a more serious challenge to pareto improvement is that pareto improvements are often hard to find in practice because of the obvious and powerful incentive to always make any available pareto improvement most of the time we should expect that if a pareto improvement were possible then it would have already been made so true pareto improvements should be rather rare an exception to this is a situation where the existing allocation of resources is based on notions of equity that have been put in place to deliberately harm some people in this case pareto improvements may be easily available but forgone in the name of equity pareto improvement vs kaldor hicks improvementit might still be possible to effect a change that represents a net gain for society but isn t a pareto improvement a kaldor hicks improvement is designed to overcome this shortcoming of pareto improvements in a kaldor hicks improvement someone is made better off and someone else is made worse off but the gains for the winners are larger than the losses to the losers so with a kaldor hicks improvement there is a net gain for society when the gains and losses are all added together these net gains should in theory be enough to compensate for the individuals losses though actual transfers from the winners to the losers may or may not occur and are not strictly necessary for a move to be a kaldor hicks improvement 4examples of pareto improvementsuppose an equal amount of funds can be disbursed ex nihilo to two families one rich and another poor the amount helps lift the latter above the poverty level but does not make much difference to the overall income of the former either way this is a pareto improvement as long as the disbursed funds are not first taken from someone and as long as the resulting distribution of real goods and services once the funds have been distributed and spent by the recipient does not result in anyone s consumption being reduced in practice both of these conditions are virtually impossible another example of pareto improvement is the case of two students exchanging lunchboxes one of the students who does not like cheeseburgers gives their burger to another student who considers it delicious even though one of the students gives away their burger no one is worse off and both students are satisfied with the trade exchange this is an example of a pareto improvement 