The Broad Scope of Pareto Optimality
During the late 19th and early 20th centuries, an Italian scholar named Vilfredo Pareto made significant contributions to economics, engineering, philosophy and sociology, and one of his most noteworthy ideas is known as Pareto optimality. Also referred to as Pareto efficiency, Pareto optimality describes a specific way of considering the allocation of goods among a selected group of individuals.
Essentially, Pareto optimality describes a state of affairs in which resources are distributed such that it is not possible to improve a single individual without also causing at least one other individual to become worse off than before the change. It provides those studying economics with a certain perspective and criteria for judging the efficiency of a distribution system. Additionally, this way of looking at economic efficiency and income distribution helped Pareto and other contemporary economists develop microeconomics as a field and discipline of study.
What Is a Pareto Improvement?
Related to the idea of Pareto optimality is that of a Pareto improvement. A Pareto improvement is a term used when looking at a distribution of goods within a system from the perspective of Pareto optimality. A Pareto improvement is said to have taken place if a change is made in the distribution of goods or resources that results in at least one individual being better off than before the change while not making any other individual worse. Another way of describing Pareto optimality is to describe any state as Pareto optimal when no Pareto improvement is possible. This effectively means that it is impossible to improve the condition of any single individual without harming the condition of another individual.
Weak Pareto Optimum Allocations
A weak Pareto optimum, which is also known as a WPO, is a distribution in which there is no alternate distribution that would cause each individual in the system to gain. Under this perspective, a change is considered a Pareto improvement only when an alternate distribution is preferred by the individuals in consideration. When considering Pareto optimality from this perspective, the previously mentioned standard Pareto optimum standard is then considered to be a strong Pareto optimum, or an SPO.
Pareto Optimality in Engineering
In addition to economics, the idea of Pareto efficiency has also had a considerable impact in the field of engineering. It is used to describe a range of choices as a Pareto set or a Pareto frontier. These choices are those that are Pareto efficient, and defining this set of choices allows engineers to make considerations within this set without considering the full range of parameters available to them. In computer science, algorithms that are designed to compute the Pareto set from a set of choices are referred to skyline queries or maximum vector problems.
Relationship to the Pareto Principle
Pareto optimality is often considered alongside the Pareto principle, but the two ideas are only tangentially related to each other. The Pareto principle was actually developed by Joseph Juran, a business consultant, who named the law after an observation made by Vilfredo Pareto. In 1906, Pareto observed that 20 percent of the population in Italy owned 80 percent of the land. Juran began to apply this as a rule of thumb as the principle of factor sparsity or the law of the vital few. Given the observation that this proportional distribution occurs frequently in nature, it is assumed to be desirable.
It is common for sales teams to observe that 80 percent of their sales come from only 20 percent of their products, that 80 percent of their sales result from 20 percent of their staff members and 80 percent of their revenue is from 20 percent of their clientele. Following this line of thinking, businesses use the Pareto principle to focus their efforts and resources on areas that are more likely to exhibit growth and productivity.
Legacy of Pareto Optimality
The importance of Pareto optimality results from its widespread use as a standard for comparing and judging outcomes. While Pareto optimality provides only a weak standard because it does not provide a mechanism for discerning between the relative efficiency of competing Pareto improvements, it offers standard judging criteria that many can comfortably accept in the areas of economics, engineering and business.