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Belief-consistent Pareto dominance

Author

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  • Xiangyu Qu

    (Centre d’Economie de la Sorbonne
    Wuhan University of Technology)

Abstract

The classic Pareto criterion claims that all voluntary trades, even on the grounds of heterogeneous beliefs, should be encouraged. I argue that a trade without hope for Pareto improvement remains controversial. I introduce and characterize a notion of belief-consistent Pareto dominance to formalize this argument, which, in addition to unanimity of preferences, requires all rankings in a trade to be supported by some common beliefs that must coincide with the agents’ beliefs about the events on which all agents agree.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:etbull:v:8:y:2020:i:2:d:10.1007_s40505-019-00178-0
    DOI: 10.1007/s40505-019-00178-0
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    References listed on IDEAS

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    1. Markus K. Brunnermeier & Alp Simsek & Wei Xiong, 2014. "A Welfare Criterion For Models With Distorted Beliefs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1753-1797.
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    5. Itzhak Gilboa & Larry Samuelson & David Schmeidler, 2014. "No‐Betting‐Pareto Dominance," Econometrica, Econometric Society, vol. 82(4), pages 1405-1442, July.
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    8. 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.
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    More about this item

    Keywords

    Heterogeneous beliefs; Belief consistent; Pareto condition; Speculation;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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