Paretooptimum

Pareto optimum, or Pareto efficiency, describes a state of resource allocation in which it is impossible to make any individual better off without making someone else worse off. In practice this means that there is no feasible reallocation of resources that would increase at least one person’s well-being while leaving everyone else’s at least as well off as before.

Formally, an allocation is Pareto efficient if no other feasible allocation can improve someone’s utility without harming others. The set of all such allocations is called the Pareto frontier or Pareto set. Because Pareto efficiency concerns only the possibility of improvements, there can be many Pareto efficient outcomes, corresponding to different distributions of goods or values across agents.

Pareto efficiency does not imply fairness or an optimal distribution of total welfare. It is possible to have multiple, very different Pareto efficient allocations, some highly unequal. Efficiency concerns the allocation of resources given preferences and technology, not the equity of the outcome.

In economic theory, the First Welfare Theorem states that under ideal conditions a competitive market equilibrium is Pareto efficient. Real-world frictions—externalities, public goods, information failures, or non-convexities—can cause departures from efficiency, so markets may fail to achieve Pareto optimality.

The concept is named after Vilfredo Pareto, who introduced it in the early 20th century. It remains a central tool in welfare economics, game theory, and optimization for evaluating and comparing allocations.