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The Optimality of Arbitrary Partial Equilibrium Welfare Analysis

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  • MARC DUHAMEL

Abstract

This paper characterizes the general equilibrium foundation of arbitrary partial equilibrium welfare analysis in second‐best economies. While prior theory recognizes the importance of market distortions affected by relative price changes, it offers little guidance about the necessary scope of Marshallian partial equilibrium analysis. The paper determines necessary and sufficient conditions for optima of Marshallian total surplus functions to characterize second‐best Pareto‐optimal allocations. While these conditions confirm much of the traditional approach to applied welfare economics, they bring doubt about its reliability for public policy and concerns over its systematic use to build conventional economic wisdom.

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  • Marc Duhamel, 2006. "The Optimality of Arbitrary Partial Equilibrium Welfare Analysis," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(2), pages 321-343, May.
    • Handle: RePEc:bla:jpbect:v:8:y:2006:i:2:p:321-343
    DOI: 10.1111/j.1467-9779.2006.00266.x
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    1. Bliss, C. J., 1975. "Capital Theory and the Distribution of Income," Elsevier Monographs, Elsevier, edition 1, number 9780720436044 edited by Bliss, C. J..
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    Cited by:

    1. Glenn Jenkins & CHUN-YAN KUO & JOHN GIRALDEZ, 2007. "Canadian Regulatory Cost-Benefit Analysis Guide," Development Discussion Papers 2007-03, JDI Executive Programs.

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