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Economic theory and the welfare state : a survey and interpretation

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  • Barr, Nicholas

Abstract

'I propose here the view that, when the market fails to achieve an optimal state, society will, to some extent at least, recognize the gap, and nonmarket social institutions will arise attempting to bridge it....' (Kenneth Arrow 1963, p. 947). 'Economic theorists traditionally banish discussions of information to footnotes. Serious consideration of costs of communication, imperfect knowledge ... would, it is believed, complicate without informing.... [T]his comforting myth is false. Some of the most important conclusions of economic theory are not robust to considerations of imperfect information' (Michael Rothschild and Joseph Stiglitz 1976, p. 629). 'That any sane nation, having observed that you could provide for the supply of bread by giving bakers a pecuniary interest in baking for you, should go on to give a surgeon a pecuniary interest in cutting off your leg, is enough to make one despair of political humanity' (George Bernard Shaw, The Doctor's Dilemma, 1911).

Suggested Citation

  • Barr, Nicholas, 1992. "Economic theory and the welfare state : a survey and interpretation," LSE Research Online Documents on Economics 279, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:279
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    File URL: http://eprints.lse.ac.uk/279/
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    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics

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