What Happens When Nobody Is Better Off? Pareto Deterioration

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A tenured senior professor at another university, one of his department’s top researchers and best teachers, asked his department chairman for a temporary one-course teaching reduction for this Fall. The chairman refused but offered a terminal three-year appointment that included this reduction for all three years, at the same salary as if this professor taught a full load each year.

The professor accepted the deal, as he desperately wanted the teaching reduction this Fall, figuring he could get a teaching job elsewhere after three years. But he tells me he would have been happier teaching a full load over the next two years, and would rather not have to search for a job in two years. He is worse off. The department and university are also worse off, since they lose his courses in each of the next two years, and thereafter will not get the benefit of his teaching and his research/publication luster; and students are worse off too.

Is this really a Pareto deterioration—a new economic phrase denoting a change in which at least one person is worse off, and nobody better off? And is the phrase Pareto deterioration the best name for this unusual phenomenon?


Boris

It sounds like at least the chairman wanted this professor gone, so it's not clear to me that _everyone_ is worse off...

Trevor

Maybe I'm missing the point here - but why would either party offer or accept a deal that made themself worse off?

In the example given, why would the professor accept a position worse than his current one, and why would the department offer the same?

Surely the offer / acceptance indicates that each party (thinks he) is better off?

And if it's just people making the wrong decision, then does it really deserve a 'new economic phrase'?

Ahmed Zghari

Darwinian Economics (can't believe there is such concept coming through) would suggest that if there is:

1) no progress;
2) no improvement; or
3) no inclination to improve on what went before,

a Dodo's fate awaits.

When there are no beneficiaries and only losers, there is no (1) inclination to (2) improve on things, and there is no (3) progress. It is, therefore, only a matter of time before we go the way of the Dodo.

Ivan

Best thing to do in this type of situation is to re-negotiate the agreement. That should be particularly do-able in this situation where transaction costs are minimal.

Eric M. Jones.

Simple...I think this requires the services of a good negotiator. Maybe you can borrow one from the sports department.

DaveZ

How about "lose-lose"

Rex McClure

Pareto dysoptimal, pareto abysmal, pareto defective.

Clearly, negative externalities abound in this scenario (including the time and trouble of finding a replacement, hiring a relatively unknown commodity, and paying ever increasing salaries to attract and retain new blood). Is anyboby better off? This is purely conjecture, but there may be an under current of departmental politics in the chair's decision. The chair may see this as an opportunity to reshape the political/cultural landscape of the department (i.e., soldify power). If this is the case, the chair may view this as a zero sum trade-off as much as the professor does. Pareto neutral.

MikeM

The university and students are only worse off if whatever or whoever he is replaced with is of lower quality, right? If they can offer a higher-quality course, then the univ. comes out on top for getting him to break his tenure.

Leigh Caldwell

I don't think that really hangs together - why would the chairman offer the deal if it would make him worse off? And why would the professor accept it?

We could always ask the question of a Pareto improvement OR deterioration: Better (worse) off compared to what counterfactual? As standard, the counterfactual is the current state of affairs. The question becomes more subtle if the counterfactual is "some other imaginable world" such as the world in which the prof is allowed to teach one fewer class as he originally requested.

I would not go as far as to say a Pareto deterioration can never happen, because people can make mistakes - most often by overestimating the magnitude of one potential loss and therefore missing out on greater benefits. But it's hard to define tradeoffs between gains and losses in a model where you don't assume all choices correctly reveal rational preferences.

Food for thought, as this somewhat rambling comment may illustrate.

Read more...

Olli

I don't think there is any global deterioration happening:
- The professor has to work less for the same pay, but loses job security
- The school gets less work for the same pay, but is able to get rid of the professor after 3 years, or renegotiate from a better position
- The students are not part of this transaction, so they are irrelevant.

So both sides win on one axis and lose on the other - no pareto improvement, but no deterioration either.

Psychohistorian

The idea of a Pareto deterioration is interesting, but this does not seem like an example. The University gets the benefit of being able to get rid of a (presumably) tenured professor. If it didn't want to get rid of him, it obviously would not have offered him a deal in which he left the school after three years.

He gets the benefit of reduced courseload at full pay. Presumably, the University preferred having the ability to get rid of him over the pay reduction they might be able to negotiate for a reduced workload.

Amazed

When did things stop being a "really stoopid personal decision" and start being a phenomenon?

And since it was entirely self-inflicted, for both parties, why is it an issue at all needing study? Surely college profs and administrators, even it not at a law school, have heard of the Law of Unintended Consequences. No one is immune, even smart people. Good grief.

Matty-O

The term is logical but this case suggests otherwise (based on the facts presented). It would seem that the university chairman has reason to believe the school will be better off without this teacher in three years and is therefore willing to in essence buy-out his tenure while at the same time being able to find a solution to cover the course load (and potentially the research volume). In my experience, research prowess has a slight inverse correlation with teaching ability, so I think it could also be possible that over the long-term the students will be better off with a new professor. It seems possible the that everybody is better off by this decision - the Professor is because otherwise he would not have signed the deal. The University is because they can jettison a professor of decreasing value. And the students are as they can replace this professor with a better teacher.

Sam_L

The author misses the issue of time frame. The Professor is sacrificing his long-term benefit for the short-term benefit; by this decision he indicates that the short-term benefit is more valuable. Thus, in the immediate, the professor IS better off - no deterioration here. The same analysis would hold for the University - they are freeing themselves from a future liability by taking a minor loss in the present.

Warren

What did the professor offer in exchange for the reduction in his teaching load? Did he offer a commensurate reduction in his salary for the Fall? Even if he did, the chairman would still be faced with either canceling the course for the Fall or having to backfill with another teacher drawn from existing faculty or requiring a new, possibly temporary, hire. Without more information, it doesn't appear that the professor put much on the table in exchange for a reduction in his teaching load, while the chairman would unequivocally be worse off.

Joe J

Bad example, since it is baseless assumptions that all are worse off. The university and students may well be much better off.

But also you are not truely comparing like to like. Since for whatever reason the person working a full workload this term is not a valid choice.
His real options or choices are quit now or take the deal. Taking the deal is aparently a better choice.

Brian

I reject validity of the pareto deterioration. The freakonomist in me assumes that the department chair should make the choice that benefits him/her the most. Therefore a pareto deterioration is not a valid outcome. Consider that it may have been the department chair's career that benefited at the cost of both the university and the professor.

KevinH

the new applicant is better off. The school or students 3+ years down the road might be better off depending upon the applicant.

DavidH

Pareto decay has a nice ring to it

Lew Jacobson

Fine analysis of the petty, shortsighted habits of academic administration.

-Universities habitually don't care about students being worse off. (Probably the Dept. Chair believes that anyone can replace that eminent prof's teaching.)

- University administrators are deathly frightened of 'creating a precedent' they may have to live with. This reflects the fact that they are often cowardly human beings who lack the strength of character to make decisions based on the circumstances of specific cases.

- By and large Universities do not treat their older faculty well. Was this prof. close to retirement age?