A false Pareto improvement

Greg Mankiw asks a question (HT SB7):

The Congress allocates free tickets to the presidential inauguration, often by lottery.  Some winners of the lottery try to sell them for thousands of dollars.  Senator Schumer objects to the resale.

Question 1: When David, a lottery winner, sells his ticket to Ann, both David and Ann are better off. Who is worse off?

The answer is obvious: Chuck, the member of Congress, who wanted to maintain absolute control over the ticket-allocation process (even if this just means a lottery), is worse off. I mean, just listen to him. He perceives, not necessarily incorrectly, such a re-sale as a personal loss of power and influence i.e. if only via the ability to ensure all requests for such a thing are routed through him and his empowered clique.

True Pareto improvements are difficult to identify once you bring a corrupt, self-aggrandizing ensconced overclass into the equation.

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3 Responses to A false Pareto improvement

  1. ukfred says:

    The smaller the government, the less power available for politicians to wield. This is a microcosm of all that is wrong with the welfare state.

  2. RPLong says:

    True Pareto improvements are difficult to identify once you bring a corrupt, self-aggrandizing ensconced overclass into the equation.

    Very insightful statement that goes far beyond your blog post here. Most people don’t really understand Pareto optimality. For someone who regularly proclaims his layman-ness, you sure do have a knack for economics!

    • Thanks. I did feel like that statement touched on something that I didn’t have the capability to write a blog post about :)

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