Advanced Search
MyIDEAS: Login to save this paper or follow this series

Policy effectiveness


Author Info

  • Michael Mandler


Does the Pareto criterion discriminate among policy choices when the policymaker does not know the correct model of the economy? If the policymaker can specify ex ante preferences for each agent, there will typically be some policy change that improves the welfare of each agent relative to a status quo that suffers from a preexisting distortion. If in addition there are at least as many commodities as states, the second welfare theorem will typically apply: for almost every Pareto optimum, there is a policy that attains this allocation. Moreover, agents must trade under these policies; optimal allocations cannot be instituted by government fiat as they can be in the standard formulation of the second welfare theorem. The downside is that ex ante preferences impose interpersonal welfare comparisons. If we instead require that policy changes increase all possible social welfare functions, and we are allowed to perturb a base model with additional states, then all policies including the distorted status quo are optimal. The methodology of perturbations is problematic, however, and robust cases exist where at least some policies are suboptimal. Finally, the set of policies that maximize some welfare function is open; consequently, small changes in the environment usually do not call for any policy response

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL:
Our checks indicate that this address may not be valid because: 500 Can't connect to (10060). If this is indeed the case, please notify (Christopher F. Baum)
File Function: main text
Download Restriction: no

Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 480.

as in new window
Date of creation: 11 Aug 2004
Date of revision:
Handle: RePEc:ecm:nasm04:480

Contact details of provider:
Phone: 1 212 998 3820
Fax: 1 212 995 4487
Web page:
More information through EDIRC

Related research

Keywords: welfare theorems; Pareto optimality; taxes; policy paralysis;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:


No references listed on IDEAS
You can help add them by filling out this form.


Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Sergio Turner, 2004. "Pareto Improving Taxation in Incomplete Markets," Econometric Society 2004 North American Summer Meetings 614, Econometric Society.
  2. Sergio Turner & Norovsambuu Tumennasan, 2006. "Pareto Improving Monetary Policy in Incomplete Markets," Working Papers 2006-04, Brown University, Department of Economics.


This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


Access and download statistics


When requesting a correction, please mention this item's handle: RePEc:ecm:nasm04:480. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.