CALABRESI V. PARETO. Preferences, Harm, and Efficiency

This chapter delves into the concept of Pareto efficiency and its critique by Guido Calabresi. It begins by presenting the standard understanding of Pareto efficiency and Calabresi's arguments against it, focusing on the unanimity condition. The author then develops a defense of Pareto efficiency by redefining key notions and distinguishing between internal and external preferences, drawing on John Stuart Mill's Harm Principle. The text explores the limits of this redefined Paretian approach and discusses the potential of the Kaldor-Hicks test for efficiency. It concludes by highlighting prospects for future research, including further analytical work on the distinction between internal and external preferences and practical implementation strategies. The chapter also touches on the moral and political problems that law and economic policies must handle, offering a nuanced perspective on the intersection of economics and law.