Accessible Pareto-Improvements: Using Market Information to Reform Inefficiencies
AbstractWe study Pareto improvements whose implementation requires knowledge of only market prices and traded quantities, not utility and demand functions. Quantity stabilization gives agents the right to repeat the net trades they previously conducted, but requires policymakers to have records of those trades. While reasonable in some partial equilibrium contexts, such an assumption is implausible in general equilibrium. To diminish informational requirements further, we also consider price stabilization, which holds constant the relative prices that consumers face. Although price stabilizations do not achieve first-best efficiency, they lead to Pareto-improvements and production efficiency. Moreover, the production efficiency advantage persists under price stabilization but not under quantity stabilization when some firms are not profit-maximizers; this difference can be critical in transition policies for planned economies. In addition to planning, we consider several other applications of quantity and price stabilization, both partial equilibrium and general equilibrium: removal of rent controls, deregulation of a cross-subsidizing public utility, and the entry of an autarkic economy into world trade.
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1320.
Length: 39 pages
Date of creation: Aug 2001
Date of revision:
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
Other versions of this item:
- Michael Mandler, 2001. "Accessible Pareto-Improvements: Using Market Information to Reform Inefficiencies," William Davidson Institute Working Papers Series 398, William Davidson Institute at the University of Michigan.
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- D60 - Microeconomics - - Welfare Economics - - - General
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- P30 - Economic Systems - - Socialist Institutions and Their Transitions - - - General
- F10 - International Economics - - Trade - - - General
- R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-11-27 (All new papers)
- NEP-ENT-2001-11-27 (Entrepreneurship)
- NEP-NET-2001-11-27 (Network Economics)
- NEP-PBE-2001-11-27 (Public Economics)
- NEP-TRA-2001-11-05 (Transition Economics)
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