>One of the more disconcerting "negative" results in the theory of welfare economics was articulated by Richard Lipsey and Kelvin Lancaster in 1956 in their paper "The General Theory of Second Best". They demonstrated that if there are "distortions" in more than one market, even in a one-consumer economy, it may not be beneficial to remove a distortion in a single market if distortions remain in other markets. To policy economists this observation might seem a devastating criticism of recommendations for "piecemeal reform". In 1970, Edward Foster and Hugo Sonnenschein discovered a remarkable result that removes some of the sting of the Lipsey-Lancaster observation. They proved that under reasonably general circumstances, at least one kind of "piecemeal reform", namely "radial" or proportional reductions in all distortions, would improve welfare in a oneconsumer, general equilibrium economy.<
from: http://66.102.7.104/search?q=cache:9RHL_M5dOM8J:www.econ.ucsb.edu/~tedb/Theory/distort.ps+%22general+theory+of+second+best%22+proof&hl=en&lr=lang_en On 11/19/05, Michael Perelman <[EMAIL PROTECTED]> wrote: > The student said that the theorem had been "disproved". I suspect that > Daniel's > guess is correct, since that is what I suggested in class. I was just > wondering if > anyone knew any more. > > > On Sat, Nov 19, 2005 at 12:36:52PM -0000, Daniel Davies wrote: > > utterly improbable. It's the *Theorem* of the second best; viz it is > > logically implied by its assumptions. Someone might have shown that one or > > other of its assumptions were unrealistic but this is hardly a criticism to > > which standard neoclassical economics are immune. > > > > best > > dd > > > > -----Original Message----- > > From: PEN-L list [mailto:[EMAIL PROTECTED] Behalf Of Michael > > Perelman > > Sent: 18 November 2005 23:44 > > To: [email protected] > > Subject: theory of the second best > > > > > > One of my students told me that he read that someone disproved the theory of > > the 2d best. > > Has anybody heard of such a proof? > > -- > > Michael Perelman > > Economics Department > > California State University > > Chico, CA 95929 > > > > Tel. 530-898-5321 > > E-Mail michael at ecst.csuchico.edu > > -- > Michael Perelman > Economics Department > California State University > Chico, CA 95929 > > Tel. 530-898-5321 > E-Mail michael at ecst.csuchico.edu > -- Jim Devine "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante.
