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Achieving Pareto-Optimality: Invisible Hands, Social Contracts, and Rational Deliberation

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  • David Gauthier

    (University of Pittsburgh)

Abstract

I begin with two simple, similar interactions. In one, maximizing agents will reach a Pareto-optimal equilibrium, in the other, they won’t. The first shows the working of the Invisible Hand; the second, its limitations. Using other simple interactions in which equilibrium and P-optimality are incompatible, I argue that the rational outcome of interaction answers to optimality rather than maximization, and requires agents to cooperate in realizing an agreed outcome, rather than to seek their best reply to their fellows. The terms of cooperation are set by a social contract, which coordinates choices to achieve a Pareto-optimum when the Invisible Hand is absent.

Suggested Citation

  • David Gauthier, 2013. "Achieving Pareto-Optimality: Invisible Hands, Social Contracts, and Rational Deliberation," Rationality, Markets and Morals, Frankfurt School Verlag, Frankfurt School of Finance & Management, vol. 4(78), November.
    • Handle: RePEc:rmm:journl:v:4:y:2013:i:78
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    Cited by:

    1. Abeba Nigussie Turi & Josep Domingo-Ferrer & David Sánchez & Dritan Osmani, 2017. "A co-utility approach to the mesh economy: the crowd-based business model," Review of Managerial Science, Springer, vol. 11(2), pages 411-442, March.
    2. John Thrasher, 2019. "Democracy Unchained: Contractualism, Individualism, and Independence in Buchanan’s Democratic Theory," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 36(1), pages 25-40, October.

    More about this item

    Keywords

    best-reply; equilibrium; Invisible Hand; maximization; Pareto-optimality; rational choice;
    All these keywords.

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H4 - Public Economics - - Publicly Provided Goods

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