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Reflections on the general theory of second best at its golden jubilee

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  • Richard Lipsey

Abstract

The origin of the second best article is described and criticisms assessed. Distortions making impossible the achievement of either first or second best optima are outlined. Attempts to establish the applicability of first best rules are criticised, as are general rules for making piecemeal efficiency improvements. Both often use models containing empirically invalid assumptions and a selected few of the full set of distortions. Practical policy advice requires more parochial objective functions than community welfare; must rely on formal and appreciative theory, empirical evidence, and large doses of judgment; and should concentrate on making piecemeal improvements in context-specific situations. Copyright Springer Science+Business Media, LLC 2007

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  • Richard Lipsey, 2007. "Reflections on the general theory of second best at its golden jubilee," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(4), pages 349-364, August.
    • Handle: RePEc:kap:itaxpf:v:14:y:2007:i:4:p:349-364
    DOI: 10.1007/s10797-007-9036-x
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    More about this item

    Keywords

    Second best; Piecemeal policies; Context-specific policies; Distortions; Efficiency conditions; Optimality conditions; D60;
    All these keywords.

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General

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