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Pareto Efficiency with Different Beliefs

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  • Gabrielle Gayer
  • Itzhak Gilboa
  • Larry Samuelson
  • David Schmeidler

Abstract

Pareto efficiency is not as compelling when people hold different beliefs as it is under common beliefs or certainty. In the present paper we propose to restrict the standard Pareto relation by imposing the following constraint: in order for one allocation to dominate another, all agents must prefer the former to the latter according to each agent's belief. In contrast to this unanimity Pareto criterion, the no-betting Pareto concept suggested elsewhere by Gilboa, Samuelson, and Schmeidler supplements the standard Pareto relation with the requirement that there should exist a single hypothetical belief under which all agents prefer the former to the latter. This paper analyzes and compares these and other definitions.

Suggested Citation

  • Gabrielle Gayer & Itzhak Gilboa & Larry Samuelson & David Schmeidler, 2014. "Pareto Efficiency with Different Beliefs," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 151-171.
    • Handle: RePEc:ucp:jlstud:doi:10.1086/676636
    DOI: 10.1086/676636
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    Cited by:

    1. Takashi Hayashi & Michele Lombardi, 2019. "Fair social decision under uncertainty and belief disagreements," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 67(4), pages 775-816, June.
    2. Darrell Duffie, 2014. "Challenges to a Policy Treatment of Speculative Trading Motivated by Differences in Beliefs," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 173-182.
    3. Eric Danan & Thibault Gajdos & Brian Hill & Jean-Marc Tallon, 2016. "Robust Social Decisions," American Economic Review, American Economic Association, vol. 106(9), pages 2407-2425, September.
    4. Eric A. Posner & E. Glen Weyl, 2014. "Benefit-Cost Paradigms in Financial Regulation," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 1-34.
    5. Broer, Tobias, 2018. "Securitization bubbles: Structured finance with disagreement about default risk," Journal of Financial Economics, Elsevier, vol. 127(3), pages 505-518.
    6. Xiangyu Qu, 2020. "Belief-consistent Pareto dominance," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(2), pages 219-229, October.
    7. L. A. Franzoni, 2016. "Optimal liability design under risk and ambiguity," Working Papers wp1048, Dipartimento Scienze Economiche, Universita' di Bologna.
    8. Philippe Mongin & Marcus Pivato, 2020. "Social preference under twofold uncertainty," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(3), pages 633-663, October.
    9. Takashi Hayashi, 2021. "Collective decision under ignorance," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 57(2), pages 347-359, August.
    10. Florian Schuster & Marco Wysietzki & Jonas Zdrzalek, 2023. "How Heterogeneous Beliefs Trigger Financial Crises," ECONtribute Discussion Papers Series 238, University of Bonn and University of Cologne, Germany.
    11. Takashi Hayashi, 2019. "What Should Society Maximise Under Uncertainty?," The Japanese Economic Review, Springer, vol. 70(4), pages 446-478, December.
    12. Eduardo Dávila, 2023. "Optimal Financial Transaction Taxes," Journal of Finance, American Finance Association, vol. 78(1), pages 5-61, February.
    13. H. W. Stuart, 2017. "Contingent Contracts and Value Creation," Group Decision and Negotiation, Springer, vol. 26(4), pages 815-827, July.
    14. Brandl, Florian, 2021. "Belief-averaging and relative utilitarianism," Journal of Economic Theory, Elsevier, vol. 198(C).
    15. Crès, Hervé & Tvede, Mich, 2018. "Regulation of trades based on differences in beliefs," European Economic Review, Elsevier, vol. 101(C), pages 133-141.
    16. Takashi Hayashi & Michele Lombardi, 2021. "Social discount rate: spaces for agreement," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(2), pages 247-257, October.
    17. Pivato, Marcus, 2022. "Bayesian social aggregation with accumulating evidence," Journal of Economic Theory, Elsevier, vol. 200(C).
    18. Miyagishima, Kaname, 2019. "Fair criteria for social decisions under uncertainty," Journal of Mathematical Economics, Elsevier, vol. 80(C), pages 77-87.

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