80 20 Rule
term "Pareto principle" can also refer to Pareto efficiency.
The Pareto principle (also known as the 80–20 rule, the law of the vital few, and the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes.[1][2]
Business-management consultant Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed in 1906 that 80% of the land in Italy was owned by 20% of the population; he developed the principle by observing that 20% of the pea pods in his garden contained 80% of the peas.[2]
It is a common rule of thumb in business; e.g., "80% of your sales come from 20% of your clients". Mathematically, the 80-20 rule is roughly followed by a power law distribution (also known as aPareto distribution) for a particular set of parameters, and many natural phenomenon have been shown empirically to exhibit such a distribution.[3]
The Pareto principle is only tangentially related to Pareto efficiency, which was also introduced by the same economist. Pareto developed both concepts in the context of the distribution of incomeand wealth among the population.
Contents
[hide]
1 In economics
2 In business
3 In software
4 Occupational health and safety
5 Other applications
6 Mathematical notes
7 Equality measures
7.1 Gini coefficient and Hoover index
7.2 Theil index
8 See also
9 References
10 Further reading
11 External links
In economics[edit source | editbeta]
The original observation was in connection with population and wealth. Pareto noticed that 80% of Italy 's land was owned by 20% of the population.[4] He then carried out surveys on a variety of other countries and found to his surprise that a similar distribution applied.
Due to the scale-invariant nature of the power law relationship, the relationship applies also to subsets of the income range. Even if we take the ten wealthiest individuals in the world, we see that the top three (Carlos Slim Helú, Warren Buffett, and
The Pareto principle (also known as the 80–20 rule, the law of the vital few, and the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes.[1][2]
Business-management consultant Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed in 1906 that 80% of the land in Italy was owned by 20% of the population; he developed the principle by observing that 20% of the pea pods in his garden contained 80% of the peas.[2]
It is a common rule of thumb in business; e.g., "80% of your sales come from 20% of your clients". Mathematically, the 80-20 rule is roughly followed by a power law distribution (also known as aPareto distribution) for a particular set of parameters, and many natural phenomenon have been shown empirically to exhibit such a distribution.[3]
The Pareto principle is only tangentially related to Pareto efficiency, which was also introduced by the same economist. Pareto developed both concepts in the context of the distribution of incomeand wealth among the population.
Contents
[hide]
1 In economics
2 In business
3 In software
4 Occupational health and safety
5 Other applications
6 Mathematical notes
7 Equality measures
7.1 Gini coefficient and Hoover index
7.2 Theil index
8 See also
9 References
10 Further reading
11 External links
In economics[edit source | editbeta]
The original observation was in connection with population and wealth. Pareto noticed that 80% of Italy 's land was owned by 20% of the population.[4] He then carried out surveys on a variety of other countries and found to his surprise that a similar distribution applied.
Due to the scale-invariant nature of the power law relationship, the relationship applies also to subsets of the income range. Even if we take the ten wealthiest individuals in the world, we see that the top three (Carlos Slim Helú, Warren Buffett, and
References: Distribution of world GDP, 1989[8] Quintile of population