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A characterization of piecemeal second best policy

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  • Boadway, Robin
  • Harris, Richard

Abstract

This paper derives conditions under which prices may be set proportional to margin cost in some sectors of the economy when fixed distortions exist in other sectors. Two simple neo-classical economies are considered -- one with fixed producer prices and one with variable producer prices. In the former case, necessary and sufficient conditions are derived for piecemeal policy in terms of properties of derivatives of the demand functions. These conditions are interpreted in terms of separability properties of utility functions. In the latter case, sufficient conditions are derived which involve both demand and supply derivatives. We use a dual formulation to the problem, where conditions in terms of demand and supply derivatives are observable, and explicitly take into consideration the budgetary constraint of the government. In general, complete laissez-faire is not optimal.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 8 (1977)
Issue (Month): 2 (October)
Pages: 169-190

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Handle: RePEc:eee:pubeco:v:8:y:1977:i:2:p:169-190

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Web page: http://www.elsevier.com/locate/inca/505578

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Cited by:
  1. Alan J. Auerbach, 1982. "The Theory of Excess Burden and Optimal Taxation," NBER Working Papers 1025, National Bureau of Economic Research, Inc.
  2. Lawrence H. Goulder & Roberton C. Williams III, 1999. "The Usual Excess-Burden Approximation Usually Doesn't Come Close," NBER Working Papers 7034, National Bureau of Economic Research, Inc.
  3. Richard Arnott & Elizaveta Shevyakhova, 2007. "Tenancy Rent Control and Credible Commitment in Maintenance," Boston College Working Papers in Economics 661, Boston College Department of Economics.
  4. Richard Arnott & John Rowse, 2007. "Downtown Parking in Auto City," Boston College Working Papers in Economics 665, Boston College Department of Economics.
  5. Boadway, Robin, 1999. "Le rôle de la théorie de l’optimum du second rang en économie publique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 75(1), pages 29-65, mars-juin.
  6. Alan J. Auerbach, 1980. "Tax Neutrality and the Social Discount Rate: A Suggested Framework," NBER Working Papers 0457, National Bureau of Economic Research, Inc.
  7. Pavel Ciaian, 2007. "Land Reform and Productivity Gains with Multiple Market Imperfections," EERI Research Paper Series EERI_RP_2007_01, Economics and Econometrics Research Institute (EERI), Brussels.
  8. Arnott, Richard, 2007. "Congestion tolling with agglomeration externalities," Journal of Urban Economics, Elsevier, vol. 62(2), pages 187-203, September.
  9. Krishna, Pravin & Panagariya, Arvind, 2000. "A unification of second best results in international trade," Journal of International Economics, Elsevier, vol. 52(2), pages 235-257, December.

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