Zhang Wuchang: From Pareto'S Best To Pareto'S Grief

Italy Masters

"Pareto said: the use of resources and the paction of goods can reach a condition or condition. If this condition is satisfied, we can not change the use of resources so that one can benefit and no one else suffers.

In other words, if this condition is not met, we can always change the use of resources or market pactions, so that at least one person will benefit from the society and no one else will be damaged. This is also beneficial to the benefit of the whole society.

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There are slightly different terms in these two sentences: the objective term is Pareto Condition, and the value concept is called Pareto Optimality (Pareto Optimality).

This maxim is important because it is the simplest description of the general equilibrium of resources used in a complex society.

For society, not for one person world.

Under the constraints of social resources and competition, the axiom of economics says that everyone strives to maximize their own interests. The most ideal general equilibrium of resource utilization is the situation Pareto pointed out.

For a long time, economists have described this situation or condition to describe the efficiency of social economy, which is inconsistent with inefficiency.

However, when we introduce paction or institutional cost as an inevitable limitation, the interpretation of Pareto's condition or the best point has changed.

There is no such thing as inefficiency in one world.

The first-year textbooks of economics undergraduate like to teach Robinson's one person world first, and put forward a "production possibility curve". Robinson's output point is called efficiency on the line, and it is called inefficiency in the line.

It's wrong to write three strokes.

How can the output of Robinson be in the "production possibility curve"? The axiom of hypothesis is that Robinson is always trying to maximize personal interests under the limitation. Since the curve says "possibility", that is to say, the highest possible output under the limitation is that the output point of Robinson must be above the line, and logic should not be allowed to output in the line.

You said that Robinson would maximize the interests under the limitation, and said that the maximization of the curve was limited. How could he enter the curve? There was no logical contradiction between his output and the curve.

To say that he chose the curve is a violation of the definition. It is stupid to die.

Even if Robinson himself is stupid enough to die, he will be crippled and his output will decline. That is only a limited change. The production possibility curve should be redrawn.

Society: from a buffet dinner

Since the use of resources in one world can not be ineffective, how can Pareto's condition be invalid in the society? I like to look at the example of buffet.

When you eat a buffet, you have to pay a fixed head price, then help yourself, eat more and eat less.

In this way, of course, the customer eats the last edge with zero value, and even ends up on the top.

The marginal cost of food provided by a restaurant is not zero.

Marginal cost is more wasteful than marginal utility, and all the waste of the former is higher than the latter.

In this way, the inefficiency of the buffet is contrary to Pareto's condition.

If we ask, why is there such a charge arrangement for buffet? The answer is obviously the reduction of paction costs: measuring the cost of customers' consumption, the trouble of ordering customers, the formalities of checkout, and so on, all of which are paction costs.

In principle, restaurants offer buffet meals based on paction cost savings, which is higher than that of customers.

We can also infer that the food provided by buffet is not very valuable or expensive, because the waste of precious food will easily exceed the cost of paction costs.

Similarly, we can understand that when some buffet meals provide valuable food, restaurants will add limited restrictions.

The main point here is that with the consideration of paction costs, the marginal production cost of food is higher than the marginal value of customers, which is a requirement for meeting Pareto's condition.

The economic explanation for the buffet is the law of demand and the change of limitations.

But here's an important idea: buffet is regarded as wasteful and inefficient, just because we ignore the paction cost.

In order to explain the consumption of buffet customers, we do not need to introduce paction costs for measuring and classifying the prices. We only propose a fee based on the head count.

But if we want to explain why the charging arrangements for buffet meals will be adopted, these paction costs are not to be introduced.

The former is wasteful and the latter is not.

The main point is: to explain a phenomenon does not necessarily include the limitations that are sufficient to satisfy Pareto's condition; the "wasting" behavior is based on the fact that we do not need to take all the limitations into account to explain it.

If all the limitations of the real world are put in, waste can not be calculated.

This is an important use for Pareto's condition.

To explain a phenomenon, when we find that the specified limitations are wasteful, we need to examine whether the other limitations that have not been introduced to "waste" need to be introduced.

Examples of rent control

The example of a buffet is shallow, demonstrating that the difference between inefficiency and efficiency is only due to the limitations of the introduction, which is sufficient to explain the limitations of certain behaviors or phenomena, and often does not need to consider other limitations that are sufficient to meet Pareto's conditions.

In the real world, it is not easy to find the introduction of local and comprehensive limitations like buffet.

The method is actually the same, but we have to use a few examples to know about some examples.

The conclusion is always the same: limitations are inevitable. No matter how the government's policies fail, Pareto's conditions are satisfied if all relevant limitations are introduced.

In other words, inefficiency is the fact that economists intentionally or unintentionally disregard some limitations.

Transactions or institutional costs are most often ignored.

I have spent a few years investigating rent controls in Hongkong and published three articles. Although the friends in the price control theory are important, it is not easy to understand the emergence and sustainability of the rent management.

If we look at the effect of this policy alone, Pareto will faint at once.

In 1947, the government of Hongkong considered the introduction of rent control on the grounds that the Hong Kong people who returned after World War II fled to their homes.

At that time, the governor appointed five members to decide that the governor knew in advance that he would vote for one vote.

Two of them are lawyers who can earn money from rent management.

The English lawyer who wrote the legislation for the control said he did not understand and had doubts about what he wrote.

The governor said that it was temporary, but it was not for a while after two delays. The legislation was amended more than thirty times, and it lasted for more than 40 years.

The disaster is obvious: in those days, the population of Hongkong increased rapidly, but because of the difficulty in rebuilding and upgrading the old buildings, the stories of renting and even fighting by the tenants and the owners were daily.

Today, in Hongkong, many of the buildings that have been destroyed are usually the traces left behind by different rents.

I have talked with two Hongkong judges who specialize in dealing with rent control cases (one invited to my home in Seattle for a week to talk everyday).

They agreed that if Hongkong had to launch the rent control system, it was the most desirable and teachable way for Hongkong to revise many of its laws, but the experience of Hongkong was that we knew it before.

I dare not say that Hongkong has insisted on the limited password of rent control, but the four limitations are obvious.

First, ignorance - the evidence that has been revised over thirty times is ignorance.

Two, ignorance is ignorance, ignorance is strange.

In 1962, a footnote was accidentally added to the amendment of the legislation. It was said that there would be a larger floor area ratio when applying for immediate reconstruction before the end of 1965.

The redevelopment of the craze led to bank withdrawals and property prices plummeting.

Stupidity is limited and inevitable. Pareto wants to laugh.

Three, interest groups are not easy to handle.

Regardless of the interests of lawyers, owners have the right of ownership, tenants have the right to live, and what members of politicians have the right to control, the three are confused.

No intention can bring disaster to disaster.

Four, a temporary legislation which caused trouble. The Hongkong government never dreamed of it at first.

The complexity of the world, seemingly controllable legislation, brings out other unexpected changes.

Today, these other limitations are true at the time, so Pareto's condition is satisfied.

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Pareto's view of theft

G. Tullock, economist, raises a question and an answer.

I think the question is interesting, but the answer is wrong.

Tower elder brother asked: what is the harm of theft to the society? The thief gets the property, the owner loses property, and loses everything. Why does he harm it? The answer is that the owner wants to spend money on the door locks and other anti-theft facilities in order to prevent theft, and the government has to pay the owner's taxes to provide security, which adds a lot of social costs, so theft is harmful to the society and violates Pareto's condition.

Do you agree?

The problem here is that the basic assumption of economics is that each person tries to maximize his own interests under the limited constraints, which is the fundamental assumption that Pareto's best point or condition can not be ignored.

Taking this assumption, Pareto's condition could not be logically established.

Smith says that human selfishness will bring benefits to society, of course, but "the theory of the wealth of the country" despises human selfishness that will easily increase the paction or institutional costs of society.

Theft, deception, robbery, terrorist activities are all the result of maximizing personal interests under limitations.

The definition of economics is not allowed to be viewed from another angle.

It is not that there can be no other basic assumptions that are more explanatory, but in the explanatory category that we know today, the traditional assumption is to stick to the rule.

You say that sometimes people are selfish and sometimes selfish, so any behavior can be explained from selfish or selfish. It is impossible to put forward a hypothesis that can be verified (that is, the possibility of being overturned).

Is it selfish to donate money to help the poor? Only God knows, but as a science, economics must stick to this assumption and then explain the donation behavior with limited changes.

Looking back at the buffet case, the customer eats the "waste" with zero value at the margin.

If customers are not selfish, they will be good for themselves if they know how to take into account the interests of the general public.

The owner of a restaurant only attaches the marginal cost of each food to the wall, and the customers know that they are comfortable. The marginal cost per person is equal to the marginal cost of food. The cost of measuring and monitoring is saved, and the marginal value is less than the marginal cost.

In this way, the restaurant owners can not help reducing their buffet fees under the competition of their peers, so that the customers are happy.

Unfortunately, human beings are not.

If God created people who are selfish and socially harmful, unselfish to society, society will be much richer than we know.

However, the Old Testament says that Mose brought down the Ten Commandments from the mountains, which taught people not to be selfish.

We ask: Why are there ten commandments in the Bible? Why do saints in China teach virtue and morality? Why do our parents teach their children to be honest and courteous? Why do all customs on the earth have etiquette? My answer is that all this is to reduce paction costs or institutional costs.

To reduce or decrease, custom only helps to restrain certain behaviors of increasing institutional costs, and has changed the limitations of human choice in a certain way.

Selfish behavior will increase the cost of the system.

Game theory is useless.

Smith did not attach importance to the "disaster" brought by selfishness, which is the reason why game theory has prevailed in the past thirty years.

The lack of knowledge about the real world and the change of limitations do not explain many behaviors. The introduction of game theory is just a showcase of flowery and embroidered legs.

Economics has a Hotelling (H. Hotelling, 1895-1973) paradox (Hotelling Paradox).

The paradox says that there is a very long road from east to west, with an average population distribution.

In order to save pportation costs, a supermarket should be set up to be built at the central point of the highway.

To start two, the ideal choice is to build 1/4 on the East and west sides of the road respectively.

However, in order to win customers, both the East and the West struggle to move to the center. The final equilibrium point is that the two are built together in the central part of the highway.

This is the behavior of the game, and if there are three, then everyone will turn around and go on forever.

This is not the case with practical economic explanations.

As long as we know the constraints, we can deduce where or how many supermarkets will be located.

One family can buy another family, or many can share the stock business, or there are numerous small families distributing on the road, or even leaving the road may be a better choice.

But we need to know a lot about the limitations: the price of land, the nature of population distribution, the location of business district, the linkage of supermarkets, the convenience of employees.

It is probably not easy to know these, but it is not difficult to understand the distribution of supermarkets.

I would like to repeat here: theory is simple, but there must be an in-depth level. Limitations can be simplified, but we can withstand complex ravages.

The death of mankind is Pareto's sorrow.

If we accept that the waste of buffet is to satisfy Pareto's condition or the best point, then we must accept other disasters brought by limitations and selfishness, which also satisfy Pareto and even human extinction.

As such, selfishness is not a logical choice in definition.

Counting all the limitations, Pareto

From the point of view of "the highest good", buffet meals will not destroy human beings, no matter how wasteful they are.

This is because the owner of the restaurant has a choice: if the waste of buffet is higher than the paction cost of the non buffet, the boss will not provide buffet.

If the boss is stupid and insists on providing a buffet that wastes more than cost, the market will eliminate him.

The survival of the fittest, the elimination of unqualified persons, and the progress of individual society or individual organizations, each with their own choices, will bring social progress.

Smith, the economist, is a man of great wisdom.

He said that human selfishness is the result of the survival of the fittest, while he analyzes the evolution of the system of farmland operation, which is also the elimination of the fittest system.

Although he made a serious mistake in the analysis of the evolution of the farmland system (see the thirty-two to thirty-four pages of his tenancy theory), his survival of the fittest is really good and important.

This thinking is convincing, affecting the later probably the greatest scientist in human history: Darwin.

It may be that the elimination of selfish competition generally brings good results to society.

It is not easy for us to understand why the predecessors did not think that the increase or limitation of the system cost brought by human selfishness can make individual people or institutions have no chance to withdraw or not participate, which may lead to great damage.

The older generation did not think that human intelligence could create weapons that could destroy all mankind.

Think about it.

Rent control in old Hongkong was only a small number of people's decisions, but it was hard to get rid of it.

However, compared with the countless Chinese people's communes of the dead, Hongkong's rent management is a pediatrics department.

In the one hundred years of twentieth Century alone, there were many man-made disasters.

In 1945, the nuclear bomb exploded in Japan. After thirty years, the development and manufacture of nuclear weapons were said to be enough to destroy all mankind.

The choice of individuals or institutions without any involvement can have a horrific effect.

In February 22nd, two, seven, I wrote in an article:

"How can humans kill each other? There is only one answer.

Selfishness can undoubtedly bring benefits to society, but selfishness can also increase paction costs or social costs.

As long as these costs become high enough because of selfishness, human beings can destroy themselves.

Under such limitations, human beings have invented weapons that can destroy themselves because of their brains. There are many opportunities to increase paction costs due to selfishness, resulting in the destruction of the creatures that have not appeared in the universe.

Only human beings can do it, because only human beings can have the wisdom to destroy themselves.

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Darwin's "survival of the fittest" is a set of logic, but it is very important, because adding content can produce numerous explanatory hypotheses.

Pareto's view of economy is an important idea, and also a set of logic. We must put the content into it before we can get a hypothesis that can be verified.

When I put the paction or institutional cost into account, the result is that Pareto is the best and Pareto is the same.

Although it is a set of logic, Pareto's condition, after all, provides a simple and important view of the world, helping us to make clear choices in the process of interpreting behavior in the face of many complicated limitations.

It's easy to use; I often use it.

We should not forget that an important implication of Pareto's condition is that the limitations that can be avoided under social competition must be avoided.

Let us not put the limitations of the interpretation of the world into the analysis.