Pareto Optimal, I Think Not

I'm sure there will be a spate of good, new economic thought that comes out of this whole economic crisis, if there hasn't already. I'm sure a lot will focus on this whole idea of rational choice theory and how individuals will not always make the best decisions - even if they have all the information in front of them. Surely other thought will focus on how equal information cannot be said to ever fully exist and therefore will always allow for market inefficiencies. I have a simple example from today at work. (Note - breaking rule - blogging about work)

We send out books. Sometimes galley copies or the books themselves and more often, now, electronic copies. In the case of when we have hardcopy, the Pareto optimal solution is probably to send the hardcopy (unless the recipient has a Kindle), to avoid printing costs. However, as the sender, we have incentive to send the electronic copy because it is easier to draw up and email and attach a document than to prep a package and give to the messenger. So we send electronic copies, even though the Pareto optimal solution is to send the hardcopy. Expand this idea to other things and you can see how we get into messes...