Hoppe was the one who demonstrated that the Pareto-rule approach to social-welfare economics leads, not to an optimization end point, but to a step-by-step Pareto-superior process with an objective starting point. FULL ARTICLE by Jeffrey A. Herbener
Source link: http://archive.mises.org/11406/hoppe-in-one-lesson-illustrated-in-welfare-economics/
Hoppe in One Lesson, Illustrated in Welfare Economics
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The lack of Pareto optimality obtained through government intervention appears to me to be a special case of a general sub-optimal principle involving the exchange of shared property.
Take the example of company X that is to be acquired by company Y, where company X is governed by proportionate equity ownership. Let’s assume that company X is owned by shareholders A (with 51% ownership) and B (with 49% ownership). Furthermore let A value his shares at $9/share and B value his shares at $11/share. If company Y offers $10/share for company X then this is sufficient to establish a voluntary transaction between these companies. While both companies (by weighted average) may be said to benefit, it is clear that this exchange is sub-optimal from the perspective of shareholder B.
Individual-based Pareto optimality is therefore not guaranteed for the free market exchange of co-owned property. Government, in theory, represents the greatest example of co-owned property within a nation.
Please list prerequisite reading.
e.v.: see footnotes
I stopped reading after the word “schoolboy”.
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