Pareto Efficiency

Topics: Health care, Welfare economics, Vilfredo Pareto, Game theory, Economics / Pages: 2 (433 words) / Published: Mar 26th, 2014
Question 3)

a. Since the heirloom cannot be split, then the two Pareto efficient outcomes are that either Arun receives the heirloom (Arun $25, Beena $0) or Beena receives the heirloom (Beena $1, Arun $0).
b. If you allow for monetary side payments, then the Pareto efficient outcomes can be seen in the chart below:

Beena Arun
0 25
1 24
2 23
3 22
4 21
5 20
6 19
7 18
8 17
9 16
10 15
11 14
12 13
13 12
14 11
15 10
16 9
17 8
18 7
19 6
20 5
21 4
22 3
23 2
24 1
25 0

Question 4)

a. For the Union, it is preferable to have a high health care over a high pension. For management, it is preferable to have a low health care over low pension. Intuitively, this means that an efficient agreement would be to have high health care and low pension.
b.
Pension Health Care Union Management Pareto
Low Low 0 3 Yes
Low High 15 2 Yes
High Low 5 1 No
High High 20 0 Yes

Option three, high pension and low health care is Pareto inefficient. You can see that visually in the graph (it is below the line of efficiency) and in the chart as well. It is Pareto efficient because both parties stand to gain from an alternative- the union would gain ten points if they moved to low pension and management would gain one.

c. As you can see, the Pareto efficient agreements do not change. This is because the preferences didn’t change per say, just the scale of the preferences. Just as in part b, high pension- low health care is Pareto inefficient because both groups would gain from moving to low pension- high health care.

Pension Health Care Union Management Pareto
Low Low 0 30 Yes
Low High 15 20 Yes
High Low 5 10 No
High High 20 0 Yes

Level of technological support Timing Guarantee Northstar General Data Systems Pareto Efficient?
S1 I18 Yes 530 160 N
S1 I18 No 420 260 Y
S1 I24 Yes 250 300 Y
S1 I24 No 0 440 Y
S2 I18 Yes 670 100 N
S2 I18 No 560 200 Y
S2 I24 Yes 370 230 N
S2 I24 No 120 370 Y
S3 I18

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