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Accessible Pareto-Improvements: Using Market Information to Reform Inefficiencies

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  • Michael Mandler

    (Royal Holloway College, University of London)

Abstract

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.

Suggested Citation

  • Michael Mandler, 2001. "Accessible Pareto-Improvements: Using Market Information to Reform Inefficiencies," Cowles Foundation Discussion Papers 1320, Cowles Foundation for Research in Economics, Yale University.
  • Handle: RePEc:cwl:cwldpp:1320
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    References listed on IDEAS

    as
    1. Edward L. Glaeser & Andrei Shleifer, 2001. "A Case for Quantity Regulation," Harvard Institute of Economic Research Working Papers 1909, Harvard - Institute of Economic Research.
    2. Mandler, Michael, 1999. "Simple Pareto-Improving Policies," Journal of Economic Theory, Elsevier, vol. 84(1), pages 120-133, January.
    3. Grandmont, J. M. & McFadden, D., 1972. "A technical note on classical gains from trade," Journal of International Economics, Elsevier, vol. 2(2), pages 109-125, May.
    4. CORDELLA, Tito & MINELLI, Enrico & POLEMARCHAKIS, Heracles, 1993. "Trade and Welfare," CORE Discussion Papers 1993033, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
      • CORDELLA, Tito & MINELLI, Enrico & POLEMARCHAKIS, Heracles, 1999. "Trade and welfare," CORE Discussion Papers RP 1379, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Lawrence J. Lau & Yingyi Qian & Gerard Roland, 2000. "Reform without Losers: An Interpretation of China's Dual-Track Approach to Transition," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 120-143, February.
    6. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
    7. Lau, Lawrence J. & Qian, Yingyi & Roland, Gerard, 1997. "Pareto-improving economic reforms through dual-track liberalization," Economics Letters, Elsevier, vol. 55(2), pages 285-292, August.
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    More about this item

    Keywords

    Pareto improvements; transition economies; rent control; deregulation;

    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, 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

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