Tom and Jerry have been roommates for the past two years. During this period, they bought 11 CDs together. Now that each is taking his own apartment, they are deciding how to split their possessions. Tom suggests they take 5 CDs each and give the extra one to Arnold, their neighbor. Jerry, on the other hand, suggests they flip a coin to decide who gets the 11th CD. Assuming they neither like nor dislike being altruistic, which of the two suggestions is Pareto efficient?

Question

Quizplus · Accepted Answer

Pareto efficiency refers to a situation where any change that benefits one person without harming another person is not possible. In this case, Tom's suggestion of taking 5 CDs each and giving the extra one to Arnold is not Pareto efficient because it does not give Jerry an equal chance to get the 11th CD. If Jerry disagrees with Tom's suggestion, then it harms Jerry's interests. On the other hand, Jerry's suggestion of flipping a coin is Pareto efficient because it gives each person an equal chance of getting the 11th CD. If Tom disagrees with Jerry's suggestion, it does not harm Jerry's interests because they can still divide the CDs equally. Therefore, Jerry's suggestion is Pareto efficient.

Tom and Jerry Have Been Roommates for the Past Two