Suppose World 1 is efficient, and you are happy/satisfied/whatever to the tune of 100 utils. Suppose World 2 is inefficient, and you are happy/satisfied/whatever to the tune of 100 utils. Which world should you choose to live in?
The inefficient world, of course. By definition some feasible yet unexploited Pareto improvement exists in the inefficient world, but not in the efficient world. Therefore you can hop into the inefficient world, get the Pareto improvement, and be better off than you would be in World 1. In fact, the more inefficient World 2 is, the more otherwise superior World 1 would have to be for you to be indifferent between the two.
Maybe it seems like cheating to have World 1 be no better than World 2. After all, efficiency versus inefficiency suggests the former should be better. But that's not how efficiency is defined. Efficiency just means that there are no unexploited feasible Pareto improvements. It doesn't say anything about how well a system accomplishes anything or how well-off anyone is. And while it's true that the efficient state resulting from a Pareto improvement in an inefficient state is superior to the inefficient state, so is the efficient state resulting from a Pareto improvement in an efficient state (e.g. a technological improvement dropped into a system of perfect competition). And an inefficient state resulting from a Pareto improvement in an efficient state is superior to the efficient state (e.g. a technological improvement dropped into a system of perfect competition that leads to some degree of market power in some firms).
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