Pareto Efficient allocations Smoke Smoke Efficient allocations 0 0 A yA yB A B
OA 1 0 Smoke mA OB 1 0 Smoke mB yA yB Efficient allocations Pareto Efficient Allocations
Inefficiency negative externalities Suppose there is no means by which money can be exchanged for changes in smoke level What then is Agent a's most preferred allocation? Is this allocation efficient?
Inefficiency & Negative Externalities Suppose there is no means by which money can be exchanged for changes in smoke level. What then is Agent A’s most preferred allocation? Is this allocation efficient?
Inefficiency negative externalities Smoke Smoke Efficient allocations 0 0 A yA yB A B
Inefficiency & Negative Externalities OA 1 0 Smoke mA OB 1 0 Smoke mB yA yB Efficient allocations
Inefficiency Negative Externalities Smoke As choices Smoke mm日m Efficient allocations 0 0 A yA yB A B
Inefficiency & Negative Externalities OA 1 0 Smoke mA OB 1 0 Smoke mB yA yB Efficient allocations A’s choices
Inefficiency negative externalities As most Smoke preferred choice Smoke is inefficient Efficient allocations 0 0 A yA yB A B
Inefficiency & Negative Externalities OA 1 0 Smoke mA OB 1 0 Smoke mB yA yB Efficient allocations A’s most preferred choice is inefficient