Accession Number : AD0284782

Title :   WELFARE ECONOMICS AND THE THEORY OF SECOND BEST

Corporate Author : YALE UNIV NEW HAVEN CT COWLES FOUNDATION FOR RESEARCH IN ECONOMICS

Personal Author(s) : DAVIS, OTTO A. ; WHINSTON, ANDREW B.

Report Date : 20 SEP 1962

Pagination or Media Count : 1

Abstract : Conditions are demonstrated under which a violation of one Pareto condition means that it is socially desirable that certain other of the Paretian conditions be violated. The commonly held interpretation of the Lipsey-Lancasterassified report DESCRIPTORS: *Economics, Theory, Mathematical analysis, Functions, Partial differential equations, Decision making. Identifiers: Pareto condition (Economics), Theory of second best, Welfare economics. Conditions are demonstrated under which a violation of one Pareto condition means that it is socially desirable that certain other of the Paretian conditions be violated. The commonly held interpretation of the Lipsey-Lancaster theorem - that a violation of one Pareto condition means that none of the remaining Pareto conditions is desirable - is dispelled. The approach is somewhat similar to that used by Lipsey and Lancaster in that the method of maximinization subject to constraints is used. It is demonstrated that the Lipsey-Lancaster formulation of the second-best problem introduces extraneous considerations, does not provide adequate 'guidelines' for policy applications, and leads, at the very best, to misinterpretations of the meaning of their theorem. (Author)

Descriptors :   *ECONOMICS, DECISION MAKING, FUNCTIONS(MATHEMATICS), MATHEMATICAL ANALYSIS, PARTIAL DIFFERENTIAL EQUATIONS, THEORY.

Distribution Statement : APPROVED FOR PUBLIC RELEASE