Imaging there are pareto optimality trends driven by externality cost generated pareto improvement dynamics in all possible markets.
Then pareto optimality will shift to the right until there is no more cost to externalize in each market, and the market among them with the lowest market price possible will be then the pareto optimal bundle furthest to the right as there will be here the highest level of production and consumption possible among all markets.
If these are the pareto optimality trends driven by increasing cost externalization, then this raises the question Is sustainability negatively related to pareto optimality trends? I think yes, what do you think? …
I am interested in your own views only in order to share ideas directly.
As long as there is technological development, new innovation, and greater production than in the past or greater production capacity, then there is a higher optimization of Pareto
Nazar, good day, thank you for your comment.
What you are saying is true within traditional pareto optimality thinking, as technological innovations create pareto improvement situations that will lead to a higher pareto optimal point due to expanding production frontiers until they can expand no more....here we are talking about economic sustainability...economic responsibility, economic efficiency
My question is trying to bring attention beyond traditional pareto optimality by linking expansion and contraction of production frontiers and social indifference curves to cost externalization and cost internalization processes...leading them towards other markets or being the end point of other markets.
For example, pareto optimality in traditional markets is at the point where the traditional market price line is tangent to the traditional production frontier and the traditional social indifference curve.... green pareto optimality in green markets is at the point where the green market price line is tangent to the green production frontier and to the green social indifference curve.....
'The green market price is higher than the traditional market price because besides the economic cost of production it also accounts for the environmental cost of production, hence the green pareto optimal point should be expected to be to the left of the traditional pareto optimal point....as there would be less production and consumption….
Traditional pareto optimality has a lower price because it assumes full social and environmental externality neutrality.
If environmental cost internalization was binding, then traditional pareto optimality would shift to green pareto optimality leaving traditional pareto optimality out of the green production frontier reach....
If environmental and social cost internalization were binding, then traditional pareto optimality would shift to the sustainability based pareto optimality leaving traditional pareto optimality out of the sustainability based production frontier reach....
If we connect the pareto optimal point of the traditional market, of the green market and of the sustainability market with a line that I call "sustainability pareto optimality line", then we can appreciate that when there is no cost externalization we are at the sustainability based pareto optimality point; and if we start from here for demonstration purposes, when externalizing social externalities is fine then we shift from sustainability based pareto optimality to green pareto optimality; and when externalizing social and environmental costs is fine, then we shift from sustainability pareto optimality to traditional pareto optimality.....There is an optimal point for each possible market on the sustainability pareto optimality line like the red market, the socio-environmental market or deep markets like red socialism and pure environmentalism….
Hence sustainability based pareto optimality is at the furthest point to the left on the sustainability pareto optimality line and traditional pareto optimality is to the furthest right on the sustainability pareto optimality line....making traditional pareto optimality point the most undesirable pareto point from the sustainability point of view...making sustainability and traditional pareto optimality trends negatively related and at opposite side of the sustainability pareto optimality line....cost externalization trends leads away from sustainability and closer to traditional pareto optimality, and reaches traditional pareto optimality at full social and environmental cost externalization….
Just some food for thoughts Nazar!
I think so sustainability comes along with compromises some of which are hard to accept or even cope with practically
Depending on the process of sustainability, it may be inversely related to pareto optimality. Say for instance, if in the course of economic development on agriculture, a particular sector of the society gets negatively affected because of eminent domain, it becomes pareto optimal and justifiable because its for the betterment of the common good despite the impact to some.
Dear Joan, thanks for your comment.
Who said that implementing scientific solutions is easy, but just look at covid-19, the motto is "follow the science"....
Had Adam Smith proposed the theory of the perfect sustainabilitiy market since 1776 and Wilfredo Pareto would have proposed sustainabiilty based pareto optimality, even our view of wealth and wealth accumulation would be different today?
Science follows the truth, which leads to paradigm shifts, no matter how hard the truth is.....
Good day Emmanuel....Remember Pareto is not fairness... if people are negatively affected at that bundle level or development point(that is a point of unsustainability) you are implementing fairness...something outside the meaning of pareto...Even red socialism has an optimal pareto point on the sustainability pareto optimality line, but under environmental and economic externality neutrality assumptions...something we know today due to the fall of the soviet bloc is not a sustainable position to be....
- Thanks Lucio! Pareto Optimality is meant to justify what is perceived to be unfair to some sectors as a result of a collegial action by authorities. Although, rightfully or wrongfully, it may be perceived as not fair, it becomes justifiable and therefore fair because it benefits the common good. In fact almost all actions, laws, policies and decisions of the government are in effect "Pareto Efficient or Pareto Optimal".
Emmanuel thanks again for commenting.
See that the question is about pareto optimality, not about fairness, but your concerns are valid...
From the traditional economic point of view, economic efficiency only matters since all countries are running traditional markets..... From the non-economic point of view, fairness matters, specially for the common good....And this clash between traditional economists and non-economist has been here since the time of Adam Smith, and it will never change as from inside the box you cannot see how to change it....or you can not suggest ways to change the status quo....
If a non-economist would have come up with a better criterion for markets than pareto efficiency by now, they would have already implement it.....but still today, economy efficiency only matters to the dislike of non-economists....
Your concern of social fairness is addressed in a model of socio-economic efficiency where there is social and economic fairness at the same time, but nobody has thought right now about how such a criterion can be made, and I am attempting right now to advance ideas on how that can be made or done....
See my question is about sustainability trends and pareto optimality trends...that suggest that there are superior pareto criterions than the traditional economic efficiency criterion...the goal of my writing is to show ways of how the pareto criterion can be moved towards full fairness....
I always try to provide ways in which we can promote the growth of knowledge to close paradigm shift knowledge gaps that prevent us from leaving the past behind and move towards a fairer world in social, environmental and economic terms....by showing that traditional pareto optimality is the less desirable optimality point on the pareto optimality sustainability line...
If you have no more comments related to this specific question on pareto optimality, then let's leave it here so as to avoid moving away from the core of this question.
Have a nice day
Yes I think you are right. Sustainability and Pareto efficiency are two different and rather incompatible concepts.
In Daly & Farley’s book Ecological Economics (well worth reading) they say that efficient allocation is important but is far from being an end in itself. E.g. they use the analogy of a ship that is loaded efficiently and balanced, but this is not enough, we must also assure it’s not overloaded.
They take this analogy and look at the Earth as a ship, with gross material production of the economy as the cargo. Seaworthiness of the ship is determined by its ecological health, the abundance of its provisions and its design.
Eco-economists recognize that we are sailing on unknown seas, we can’t predict the weather so we don’t know how heavy a load is safe (this is what Kay & King’s book Radical Uncertainty is about I think, though have not read it yet).
Hence we live on a complex ship: e.g. how many forests, wetlands do we need to keep afloat?
Ecological economics addresses these issues and suggests that our goal is not simply to load the ship to the limit, but to maintain areas of the ship for our comfort and enjoyment, to revel in the beauty of its build and to maintain it for future generations.
And because of increasing global uncertainty, we don’t know where tipping points lie, so we need to adopt a precautionary approach to have any chance of remaining sustainable.
This is completely contrary to Pareto optimality.
The concept of Pareto optimality in economics is a state where resources cannot be reallocated to make one individual better off without making at least one individual worse off.
It is possible under certain circumstances for Pareto optimality to be inversely related to optimality in the short run. This scenario must not persist for too long a period
Dear Peter, thank you for your detailed comment, it will help to expand the ideas.
In 1987 the Brundtland commission said that the ship was leaking in social and environmental terms, the ship is economic development a la pareto; and the ship and the pareto idea have been afloat all this time because the ship was unbalanced from the beginning and the pareto idea justifies that unbalanced situation by saying changing it would be inefficient as someone will be negatively affected. This thought holds true only from the point of view of one form of deep pareto optimality possible; and the one we have lived with, the economic efficiency only based pareto optimality.
If you step away a little bit from the economy only box, and you see why the box has been unbalanced, then you may be able to see a world beyond traditional pareto optimality….
In 2012 Rio +20, the world had a chance to go beyond economic efficiency only pareto optimality, and the leaders and academics signaled strongly at that time that it was through the shift to green markets, green economies and green economic growth the way to do it…..that meant as shift from traditional pareto optimal to green pareto optimal, but in practice that never happened, not one green market exists today….about 8 years later….
As you may know ecological economics, environmental economics, green economics, eco-economics, traditional economics….all took the route of environmental externality management since 2012 and when doing so they created a world of non-free markets, instead of going the science based approach of environmental cost internalization and perfect, free green markets…
If you think outside the box, you can imagine environmental externality management based production and consumption bundles being between green market pareto point and the traditional market pareto point, which means that such bundles are inconsistent with both green pareto optimality and traditional pareto optimality, yet that is the way we have gone in practice since 2012….which is NOT the way we were supposed to go in theory according perfect green market thinking.
Back to the boat analogy from the 2012 Rio + 20 conference point of view as they focused only on environmental leaking:
a) the boat was leaking and the full fix was perfect green market thinking, but then
b) we moved in practice to patch the leaking boat with environmental externality management based markets, a patch means a partial fix AS the boat is still leaking environmental externalities as production and consumption takes place in environmental externality management markets…
From outside the box, you can see that sustainability trends and pareto optimality trends are negatively related when you place cost externalization or cost internalization as drivers of pareto improvements or pareto contractions dynamics…. For example, if you are in green markets, but suddenly externalizing environmental cost is okay, then you create pareto improvement situations that will push the production frontier to the right until there are no more improvements, reaching the traditional pareto efficient point…. If you are in traditional markets and suddenly internalizing environmental externalities is binding, then….the traditional optimality point will migrate to the left and take the position of the green pareto optimality point….
In summary, to move the boat to sustainability waters we need to create the conditions that leads traditional pareto optimality to migrate towards sustainability based pareto optimality…And to do that we need to close the green market paradigm shift knowledge gap created when Rio +20 declared we were going to leave traditional economic development behind and embrace green market based development.
Thank you for your comment Peter
Good day Likita, thank you for your comment.
As you may know, traditional pareto optimality assumes social and environmental externality neutrality, and today we know that such a neutrality does not exist, environmental and social costs associated with economic development are real.
The neutrality assumption binds both the short term and the long term traditional pareto optimality, as money is made in the short term, not social and environmental costs are accounted for; and as we produced and consumed at zero profits in the long term, still no social and environmental costs are accounted for…
If cost are real and relevant, but externalized, then it can be said that at the beginning the traditional pareto optimality point/time of Adam Smith had low social and environmental cost associated with production and consumption…..but as the production frontier expanded and expanded and expanded the social and environmental costs associated with those expansions expanded too….and this by 1987 when the Brundtland commission looked at it “it had expanded to unsustainable levels”, my quotation…
Hence, pareto optimality dynamics is negatively related to sustainability as the expanding social and environmental externality gaps created affects the sustainability of the traditional pareto optimality point…
And therefore, the only way traditional pareto optimality is not inversely related to sustainability is BY assuming that that is not the case.
Thank you for your comment
It depends considering how complex sustainability is and the process to achieve it
Joan, good day. Thank you for your comment
Can you think of one example where optimality trends across markets or bundles are positively related to sustainability trends?
Kindly check https://m.economictimes.com/definition/paretos-efficiency/amp
Dear Chinaza, thank you for sharing these links,,,,
I am interested in your own ideas on the question to exchange ideas in a positive environment....If you have your own views please share them....
Keep in mind, the question here implies there are other worlds beside economic only efficiency or economic optimality....for example, the world of eco-economic efficiency under which perfect green market theory is based,,,
Also keep in mind, if Adam Smith would have given us the theory of the perfect sustainability market instead of the perfect traditional market Wilfredo Pareto would have still been able to apply his ideas but under sustainability based efficiency or optimality....
A shift from perfect traditional market to green markets or red markets or sustainability markets for example, changes the whole optimality world....a la Thomas Kuhn type of scientific revolution...
Respectfully yours
Dear friends, with the positive intention of simply exchanging ideas around optimality I am sharing here Figure 10, which I use to provide an answer to the questions posed in my coming paper titled:
“Sustainability thoughts 127: Pareto optimality under the sustainability eye: Is the traditional pareto efficient bundle the second most undesirable bundle on the pareto optimality sustainability line? If yes, why?”
Notice that at point 1 in Figure 10 we have sustainability based pareto optimality, full efficiency. At point 8 we have full unsustainability, where pareto optimality breaks down under unsustainability as the market crashes as indicated by the broken production frontier, full inefficiency…
At point 3 we have green market pareto optimality, a partial externalization type I efficiency. At point 7 we have the traditional pareto optimality point, a partial externalization type II efficiency.
Notice that in Figure 10 as cost externalization is allowed and increasing(going from left to right), the sustainability based pareto optimality frontier at point 1 breaks migrating to lower level sustainability markets, and even can go as far as point 8 if there is full cost externalization….so as cost externalization takes place, market price distortions are created, feeding pareto improvement dynamics and production frontier expansions to the right that stop at the optimal point of each market if cost externalization stops at partial cost externalization….
Notice that going backwards in Figure 10 above, as cost internalization is allowed and increasing(going from right to left), the unsustainability based pareto optimality frontier is fixed migrating to higher level sustainability markets, and even can go as far as point 1 if there is full cost internalization….hence as cost internalization takes place, market price distortions are fixed. eliminating pareto improvement dynamics in the process, which leads to production frontier contractions to the left that stop at the optimal point of each market if cost internalization stops at partial cost internalization…
Hence, sustainability is positively related to cost internalization trends and negatively related to cost externalization trends. Cost internalization trends push pareto optimal points towards full optimality and cost externalization trends push pareto optimal points towards partial optimality and under full cost externalization, it pushes them towards no pareto optimality at all. Hence pareto optimality trends fed by cost externalization are inversely related to sustainability as it drives markets away from point 1, full sustainability….
Notice that the traditional market at point 7 can only expand and grow by approaching full unsustainability at point 8... which is probably the situation that call the attention of the Brundtland commission in 1987...
I will share the full paper in the coming days as soon as I finish it.
Just some food for thoughts.
Respectfully yours;
Dear friends, with positive intentions I am sharing here the third paper on pareto optimality so far, ,,,,
The paper has some good food for thoughts related to this question....Just finished..... Feel free to check it when you have time....
Sustainability thoughts 127: Pareto optimality under the sustainability eye: Is the traditional pareto efficient bundle the second most undesirable bundle on the pareto optimality sustainability line? If yes, why?
https://www.researchgate.net/publication/344279130_Sustainability_thoughts_127_Pareto_optimality_under_the_sustainability_eye_Is_the_traditional_pareto_efficient_bundle_the_second_most_undesirable_bundle_on_the_pareto_optimality_sustainability_line_If
Respectfully yours;
Interesting point. In my opinion, significant correlations between specific variables shaping sustainable development processes and pareto optimality trends are quite possible. However, the scale and nature of this correlation is determined by the specificity of the principles and objectives of implementing the principles of sustainable development, including the specificity and scale of the pro-ecological transformation of the economy.
Best regards,
Dariusz Prokopowicz
Thank you for reading and commenting Dariusz!
I am going the pareto optimality line way of thinking as at the sustainability optimality point the allocation is not just pareto efficient and pareto optimal, but also it is a point of full fairness....
The problem with pareto optimality and fairness in non-sustainability markets such as the tradtiional market arises when the first allocation point is unfair....then unfairness is justified by pareto thinking...making it acceptable.....
Have a nice day!
If you believe in the free market, there should be no intervention, thus displacement is necessarily true. Adding morals into the mix causes into the mix can create nepotism, despots, greed, and corruption.
I am conducting a survey for my dissertation that is related, please participate. Thank you.
https://www.surveymonkey.com/r/D7Y8W3V
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