Pareto in Practice

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4 Responses

  1. dave hoffman says:

    Fantastic post!

  2. Frank Pasquale says:

    Agreed–thanks so much for injecting a very illuminating practical example into what can be an aridly theoretical discussion.

  3. Dan Cole says:

    Actually, I think the post goes to show just how useless the Pareto criterion is for determining the social-welfare implications of most real-world transactions, which do not meet the strict condition of complete unanimity of all affected parties (requiring full compensation of any losers at their subjective valuations of their losses).

    The only practical example of a Pareto improvement in the real world is a discrete contract, based on complete information, with no significant negative externalities. To the extent such contracts actually exist, they hold little interest from a legal policy perspective.

  4. Thanks for the comments. I agree with Dan, actually. Moreover, even in the discrete contract situation, a Paretian POV doesn’t give some unique benefit that you can’t get from judgment based on practical experience. But for lawyers who don’t yet have so much experience drafting and negotiating — and even for some who are experienced, such as the Canadian lawyers in this example — it can be a good heuristic that helps them to write better contracts sooner.