What do you mean by paretian social optimum?discuss it?
Answers
Answer:
Pareto defined social optimum as a position from which no reorganization of production and exchange can be effected to make anyone better off without making somebody else worse off.
Explanation:
Pareto’s “Manual of Political Economy” (1906) represents a decisive watershed in the history of subjective welfare economics. Pareto broke away from the traditional utilitarian economics. He rejected the hypothesis based on cardinal utility and also the additive utility function and arrived at his welfare conclusions which do not require any inter-personal comparison what so ever. Some have therefore called Paretian welfare economics as “New Welfare Economics”.
Pareto had three objectives in mind in giving his concept of the social optimum:
1. To clarify and quantify the concept of economic welfare.
2. To develop welfare propositions which are “scientifically” free of value – judgements.
3. To clearly state what it is that economists have to say on matters of public policy.
Social Optimum:
Pareto defined social optimum as a position from which no reorganization of production and exchange can be effected to make anyone better off without making somebody else worse off.
Pareto’s welfare criterion:
From the Paretian concept of social optimum follows his criterion for judging an increase or decrease in welfare. The criterion may be stated thus: given some form of distribution, a reorganization of production and exchange would increase social welfare, if it makes at-least one person better off without harming anyone else. Since the criterion requires that there should be unanimity among individuals about the maintenance of the condition in which welfare has increased, it is also called “Pareto’s Unanimity Rule”.
Conditions:
The concept of the social optimum given by Pareto was introduced into the English language by A.P. Lerner and J.R. Hicks. Lerner detailed the conditions of production and exchange which are necessary for the attainment of social optimum in the form of marginal equalities and hence are called “Marginal conditions”. Prof. Hicks pointed out that besides these marginal on first order conditions, there are other conditions which must be satisfied to ensure that these marginal conditions define a maximum. These are referred to as total or second order conditions.