KENNETH ARROW FOR DUMMIES

In the NYT, Prof. Uwe Reinhardt is going to give us a relatively painless explanation of what Kenneth Arrow discovered about the economics of health care. In his first column, he gives an explanation of two important concepts in economics:

First, in what Professor Arrow calls the First Optimality Theorem of welfare economics, it can be shown that in this equilibrium the traded good or service is allocated among buyers in such a way that it would be impossible through any reallocation to make someone happier without making someone else less happy.

It is an allocation that economists call Pareto efficient, in honor of the Italian industrialist, economist and philosopher Vilfredo Pareto (1848-1923), who first proposed this criterion.