We 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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Find related papers by JEL classification: 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, and Regional Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
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Cordella, T. & Minelli, E. & Polemarchakis, H., 1993.
"Trade and Welfare,"
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9333, Catholique de Louvain - Center for Operations Research and Economics.