Pareto Optimality

Topics: Negotiation, Dispute resolution, Pareto efficiency Pages: 29 (8055 words) Published: January 7, 2012
Pareto efficiency, or Pareto optimality, is a concept in economics with applications in engineering and social sciences. The term is named after Vilfredo Pareto, an Italianeconomist who used the concept in his studies of economic efficiency and income distribution.[citation needed] Given an initial allocation of goods among a set of individuals, a change to a different allocation that makes at least one individual better off without making any other individual worse off is called a Pareto improvement. An allocation is defined as "Pareto efficient" or "Pareto optimal" when no further Pareto improvements can be made. Pareto efficiency is a minimal notion of efficiency and does not necessarily result in a socially desirable distribution of resources: it makes no statement about equality, or the overall well-being of a society.[1][2]

A state of affairs where it is not possible to improve the economic lot of some people without making others worse off; a mercantilist view. The implications of this view in welfare economics are that, once an economy has ceased to grow, it is impossible to increase the wealth of the poor without opposing the Pareto criterion; in other words, without making the rich worse off. This then becomes an argument for retaining the status quo, even if the distribution of income in society is very uneven. A Pareto improvement, however, occurs if resources can be better utilized so that one group's prosperity increases, but not at a cost to another's.

Negotiation is one of the most common approaches used to make decisions and manage disputes. It is also the major building block for many other alternative dispute resolution procedures.  
Negotiation occurs between spouses, parents and children, managers and staff, employers and employees, professionals and clients, within and between organizations and between agencies and the public. Negotiation is a problem-solving process in which two or more people voluntarily discuss their differences and attempt to reach a joint decision on their common concerns. Negotiation requires participants to identify issues about which they differ, educate each other about their needs and interests, generate possible settlement options and bargain over the terms of the final agreement. Successful negotiations generally result in some kind of exchange or promise being made by the negotiators to each other. The exchange may be tangible (such as money, a commitment of time or a particular behavior) or intangible (such as an agreement to change an attitude or expectation, or make an apology).  

Negotiation is the principal way that people redefine an old relationship that is not working to their satisfaction or establish a new relationship where none existed before. Because negotiation is such a common problem-solving process, it is in everyone's interest to become familiar with negotiating dynamics and skills. This section is designed to introduce basic concepts of negotiation and to present procedures and strategies that generally produce more efficient and productive problem solving.  

A variety of conditions can affect the success or failure of negotiations. The following conditions make success in negotiations more likely.  
Identifiable parties who are willing to participate. The people or groups who have a stake in the outcome must be identifiable and willing to sit down at the bargaining table if productive negotiations are to occur. If a critical party is either absent or is not willing to commit to good faith bargaining, the potential for agreement will decline.  

Interdependence. For productive negotiations to occur, the participants must be dependent upon each other to have their needs met or interests satisfied. The participants need either each other's assistance or restraint from negative action for their interests to be satisfied. If one party can get his/her needs met without the cooperation of...
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