Economic efficiency is marked by allocation of a good to a person who value the good the most. One mechanism to find who has the highest value is to assign the object to the person who is willing to (and will) pay the most. Yet, not all scarce resource can be sold for money.
Suppose an instructor has given out grades for a class and everyone has already seen their grades. Before she submit the grades, however, the instructor is willing to increase the letter grade of exactly one student. Whose grade should she increase so that it is economically efficient? That is, how can she find the student who value the improved grade the most while minimizing the negative externality?
