I demonstrated yesterday how the idea of externalities as defined by the presence of external costs relies on the externality going partially unexplained. External costs are necessarily unexplained because they are unexplainable.
The same thing can be said of Pareto inefficiency. Pareto efficiency means no one has any feasible alternatives that can make them better off without making anyone else worse off. Pareto inefficiency, therefore, means that someone can do something to make themselves better off without making anyone else worse off.
But they don't.
To me the very definition of an economic actor is someone who, when they can make themselves better off, does so. The very definition of inefficiency says that they don't.
There are two ways to reconcile this contradiction:
1. The improving alternative is actually infeasible.
2. The feasible alternative is actually not improving.
Or both, of course. And of course both reconciliations reveal the supposed Pareto inefficiency as Pareto efficiency.
Imagine trying to explain Pareto inefficiency. Suppose someone asked why people don't do the thing that makes them all better off. What could be said in explanation?
I have never seen an explanation myself, despite years of searching. I think it's because Pareto inefficiency can't be explained.