A comparison of outcomes reveals a significant difference in total production based on efficiency. Given the model's technology and preferences, any Pareto-efficient allocation results in a total output of 46 bushels of grain, which is achieved when Angela has 16 hours of free time. In contrast, an inefficient allocation, such as the initial 'Contract N' offer before negotiation, yields a lower total output of only 35 bushels.

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Figure 5.22 presents a summary comparison of outcomes from different institutional scenarios, focusing on total grain production, Angela's free time, and the division of output. The figure shows that Pareto-efficient allocations result in 46 bushels of grain, corresponding to 16 hours of free time for Angela, while inefficient situations like 'Contract N' yield only 35 bushels. It also illustrates that Angela's share of the output grows with the strength of her reservation option, increasing from 33% (15 bushels) under forced labor to 70% (32 bushels) following legislative changes and negotiation.

Figure 5.22 - Comparison of Outcomes Across Different Cases

To cite the ebook, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/.

To cite a unit, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/ Unit [unit number] (url).

CORE Econ - The Economy 2.0: Microeconomics

Production Levels in Pareto-Efficient vs. Inefficient Allocations

A comparison based on Angela's reservation option reveals a direct link to her share of the total output. When her reservation option is weak, as in a forced labor scenario, her share is low at 33% (15 out of 46 bushels). In contrast, when legislation provides her with a strong reservation option and the ability to negotiate, her share of the total output increases substantially to 70% (32 out of 46 bushels).

Angela's Share of Output under Different Reservation Options

The narrative involving Angela and Bruno serves to illustrate three fundamental lessons regarding the relationship between economic efficiency and fairness in allocations.

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