Paretian Approach Research Articles

Pareto’s legacy in the Italian tradition: the case of mathematical economics

Pareto’s personality had a great influence on the evolution of economic theory in the last century at least in the Italian context. At the beginning of the twentieth century a small but combative circle of followers aimed to defend and spread the new Paretian approach based on the idea of general economic equilibrium. Paretian scholars were well recognizable in the Italian context for their contributions to mathematical and statistical aspects. The purpose of this contribution is to outline the essential features of the Italian Paretian school in the field of pure economics or as we would say today of mathematical economics. This favorable position of the Italian tradition in the field of mathematical economics was basically due to two circumstances. The first was represented by the legacy of Pareto and his school while the second was to be found in the fact that among the students of Pareto there was a pure mathematician of great value Luigi Amoroso. We see then that an important voice even if poorly valued was that of Bruno de Finetti who published a remarkable series of articles on mathematical economics in the second half of the 1930s. After World War II the Paretian tradition in this field weakened considerably and effectively disappeared internationally.

Resolving Energy Losses Caused by End-Users in Electrical Grid Systems

This study utilises the Pareto approach to highlight the energy losses that mainly originate from the phenomena of tiny, initiated events created by end-users of electricity in Australia. Simulation modelling was applied through two stages to examine residential households’ electricity consumption behaviour in New South Wales, Australia. Stage one analysis applied Hierarchical agglomerative clustering and a dendrogram to denote the respective Euclidean distance between the different clusters. Heat maps and threshold value area charts were used to compare the mean power demand for six respective clusters. Stage two used ‘sensitivity analysis’ to investigate how uncertainty in the electricity demand can be allocated to the uncertainty of energy losses. The findings envision practical solutions to dealing with the variability of energy losses and the proposal to set new demand-side strategies associated with individuals. Retail prices of electricity in Australia have risen by roughly 60% since 2007. The research contributes to knowledge about the roots of energy losses in Australia, creating a $210M cost value. Energy losses are of significant economic value, while also impacting energy security. The first limitation of this study is using approaches from complexity theory to grasp the philosophical issues behind the research design and clarifying which insights suit what kind of evidence, thus identifying the data that needed to be collected. The second limitation is that this study’s methodology used a mostly quantitative approach that describes and explains a complex phenomenon in depth more than exploring and confirming that phenomenon. The third and final limitation is that this study’s context is also limited regarding selected sample criteria. The context is limited to a particular demographic area in New South Wales (NSW) in Australia and is also limited to residential houses (not industrial or commercial), which was opposed by data availability and access. The research draws on ‘peak and off-peak’ scales of electricity demand cause energy losses. The research shows the role of the phenomena of spontaneous emergence as a non-linked constraint which is the main issue that splits the optimal solution into pieces and significantly complicates the solution task. Demand side management (DSM) of electricity can be improved from this to construct new demand-side strategies. The study is structured around understanding the consequences of the scalability of events and the clustering dynamic of non-linearity through relevance complexity concepts exclusive to spontaneous emergence (SE), power laws (PLs), Paretian approach (PA), and tiny initiated events (TIEs). We examined the issues of the spontaneous emergence of non-linear, dynamic behaviour involved in the electricity demand of end-users on the basis of pushing individual systems of end-users to the edge of self-organised criticality (SOC). Revising the demand system’s complexity has value in constituting a core domain of interest in what is new in the field of demand side management (DSM), thus contributing to understanding end-users’ behaviour-driven energy losses from both theoretical and empirical perspectives.

Exploring the scaling law of geographical space: Gaussian versus Paretian thinking

AbstractA debate has occurred concerning the laws of scale and the fractal nature of geographical space. Biodiversity and pedodiversity studies show the emergence of fractal structures such as taxa‐area relationships. Biodiversity and pedodiversity are natural resources, although some consider pedotaxa to be artificial. The studies carried out to date emphasize that many pedodiversity and biodiversity spatial patterns converge at the same regularities. Many of these studies used natural resources maps and their digital databases. Information is extracted from the taxa types contained in each polygon and the areas covered. However, the structure of the maps (number, area, fragmentation, etc.) has rarely been a matter of study. When map structure was studied, intriguing similarities were observed in pedodiversity and biodiversity analyses. To understand whether these similarities also appear in other types of spatial entities that are more artificial, a review of geospatial analyses that studied topics such as urban maps, land system maps, etc., was undertaken. The main variables in these maps are manmade and/or combinations of natural resources data layers. Regularities detected in the geospatial information of these latter topics also seem to conform to results obtained when analysing natural resources maps such as soils, rock types, landforms, plant communities, etc. Thus, some geographers consider the idea that there are far more small things/objects than larger ones across several orders of magnitude in geographic space to be a law. Some geographers also contend that the classical “Gaussian thinking” and its statistical tools should be replaced by a “Paretian thinking” and its related statistical tools. This paper analyses the above topics as well as the lack of adequate data and types of cognitive maps we use in our modern scientific society, supporting the conjecture that that we should include Paretian thinking in our research at least in the same way we use Gaussian thinking.Highlights Long tail distributions, power laws and fractal‐like structures are ubiquitous in geospatial analysis. Scale invariance of natural and artificial map structures seem to be the rule. The Paretian approach appears to be more appropriate than the Gaussian approach for many purposes. Our cognitive maps and brain processing follow Paretian thinking in many instances.

A Paretian Approach to Optimal Design With Uncertainties: Application in Induction Heating

A major issue in optimal design of electromagnetic devices relates to optimizing against uncertainty, in terms of geometric and physical parameters. The induction heating of a graphite disk, with the purpose to obtain a prescribed temperature profile, is considered as the model problem. The novelty of this paper is a cost-effective method enabling the designer to select the Pareto optimal solutions trading off design criterion and sensitivity.

Vilfredo Pareto's influence on the Italian tradition in public finance: A critical assessment of Mauro Fasiani's appraisal

Even if Pareto never worked in public finance, he had some influence on the Italian public finance scholars. This paper aims to direct new light onto such a methodological influence. Firstly, it is pointed out that the Paretian idea of science deeply influenced the late scholars of the Italian tradition. Secondly, it is shown that Paretian sociology was less important than his economic methodology. Thirdly, it is argued that, in a generalized Paretian approach, most public policies may be studied under economic hypothesis; it remains true that, in the Paretian approach, public choices may be explained by sociological reasoning only.

Vilfredo Pareto and the Methodology of the Italian Tradition in Public Finance

In the last decade of the nineteenth century, Italian scholars started using a scientific methodology to tackle public finance problems. Their studies are now referred to as the Italian tradition in public finance, whose origin is considered to lie with De Viti de Marco (1888). Shortly before his death in 1950, Fasiani, the last scholar of the Italian tradition, published an important article, in which he showed that, even if Pareto never worked in public finance, he had some influence on the Italian public finance scholars. This paper aims to draw scholarly attention to the above article and to direct new light onto Pareto’s methodological influence on the Italian tradition. Firstly it is pointed out that the Paretian idea of science deeply influenced the late scholars of the Italian tradition. Secondly, it is shown that Paretian sociology was less important than his economic methodology. Thirdly, it is argued that it is necessary to distinguish the problems concerning the explanation of public choices, from the problems of the economic effects of public policies; then, in a generalized Paretian approach, most public policies may be studied under economic hypothesis. It follows that much of the Italian tradition may be taken back to a Paretian approach, even if it remains true that, in the latter, public choices may be explained by sociological reasoning only.

Risk management and dynamic portfolio selection with stable Paretian distributions

A bstract This paper assesses stable Paretian models in portfolio theory and risk management. We describe an investor's optimal choices under the assumption of non-Gaussian distributed equity returns in the domain of attraction of a stable law. In particular, we examine dynamic portfolio strategies with and without transaction costs in order to compare the forecasting power of discrete-time optimal allocations obtained under different stable Paretian distributional assumptions. We also consider a conditional extension of the stable Paretian approach and compare the model with others that consider different distributional assumptions. Finally, we empirically evaluate the forecasting power of the model for predicting the value at risk of a heavy-tailed return series.

Habits and Expectations: Dynamic General Equilibrium in the Italian Paretian School

Between the two world wars, the theory of general economic equilibrium received notable impetus in Italy from the work of the Paretian School. This consisted of a small, but very active, group of economists, whose best-known members at the time were Luigi Amoroso and Giulio La Volpe. One of the main aspects of the research program carried out by the followers of Pareto was their attempt to dynamize the theory of general economic equilibrium. These economists believed that research on static economics was by then complete although they were well aware that some analytical problems were still unsolved, and they advanced the construction of dynamic models using new and sophisticated mathematical tools such as functional calculus. However, despite its originality, the Paretian approach to dynamics, at least in the fields of pure theorizing, did not have a significant impact on the understanding of economic dynamics in the postwar period; we attempt to explore why.

Safety-first analysis and stable paretian approach to portfolio choice theory

In this paper, we present some characterizations of efficient sets using the stochastic dominance rules and comparing the safety-first approach with the stable Paretian analysis. We introduce a new stable Paretian version of the Markowitz financial optimization model in order to find an optimal frontier based on a more realistic model for the distribution of asset returns. As a generalization of moments analysis, we consider a portfolio selection for an investor who wishes to allocate has initial wealth across n investments with returns following general heavy-tailed distributions. Alternatively, we show that the safety-first approach can be more efficient than the stable Paretian approach. Finally, we present two possible direct methods for portfolio choice in a safety-first world.

A systems analysis approach to nuclear facility siting

This paper attempts to demonstrate an application of the techniques of systems analysis, which have been successful in solving a variety of problems, to the question of nuclear facility siting. Within the framework of an overall, regional land use plan, a methodology for establishing the acceptability of a combination of site and facility is discussed. The consequences, e.g., the energy produced, thermal and chemical discharges, radioactive releases, aesthetic values, etc., of the site-facility combination are identified and compared with formalized criteria in order to ensure what might be called legal acceptability. Failure of any consequences to satisfy standard requirements results in a feedback channel which works to effect design changes in the facility. When legal acceptability has been assured, the project enters the public sector for consideration. The responses of individuals and of various interested groups to the external attributes of the nuclear facility gradually emerge. The criteria by which interest groups judge technological advances reflect both rational assessment and unconscious motivations. This process operates on individual, group, societal and international levels and may result in two basic feedback loops: one which might act to change regulatory criteria; the other which might influence facility design or site selection. Such reactions and responses on these levels result in a continuing process of confrontation, collaborative interchange and possible resolution in the direction of an acceptable solution. Finally, a Paretian approach to optimizing the site-facility combination is presented for the case where there are several possible combinations of site and facility. A hypothetical example of the latter is given, based upon typical preference functions determined for four interest groups. The article summarizes the research efforts of the Project on Energy systems of the International Institute of Applied Systems Analysis, IIASA, in Laxenburg, Austria, and its joint research project with the International Atomic Energy Agency, IAEA, on risk assessment.