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The Invisible Hand and Modern Welfare Economics

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  • Joseph E. Stiglitz

Abstract

This paper reviews and puts into perspective recent work reassessing the first and second Fundamental Theorems of Welfare Economics. It assesses the implications of the Greenwald-Stiglitz theorem establishing the (constrained) Pareto inefficiency of market economies with imperfect information and incomplete markets as well as recent work on endogenous technological change. The information theoretic limitations to the Second Fundamental Theorem are also discussed, including the inability to separate out issues of equity and efficiency. The final sections of the paper consider the consequences of these problems for economic organization, economic policy, and the role of ideology in the belief in the Invisible Hand.

Suggested Citation

  • Joseph E. Stiglitz, 1991. "The Invisible Hand and Modern Welfare Economics," NBER Working Papers 3641, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3641
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    1. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 493-510.
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    Cited by:

    1. Mariana Mazzucato & Caetano C.R. Penna, 2014. "Beyond Market Failures: The Market Creating and Shaping Roles of State Investment Banks," Working Papers Series 7, Institute for New Economic Thinking.
    2. Shinji MIURA, 2016. "Graphic Explanation for Welfare Economic Foundation of Hoarding Loss," Journal of Economics Bibliography, KSP Journals, vol. 3(2), pages 265-289, June.
    3. Alkire, Sabina & Deneulin, Séverine, 1998. "Individual Motivation, its Nature, Determinants and Consequences for Within Group Behavior," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1999033, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    4. Radygin, Alexander & Entov, Revold, 2013. ""Fundamental" theorem of privatization: ideology, evolution, practice," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, pages 7-45, December.
    5. Bazhanov, Andrei V., 2015. "Inefficiency and sustainability," Resources Policy, Elsevier, vol. 45(C), pages 210-216.
    6. Madarász, Aladár, 2014. "A láthatatlan kéz - szemelvények egy metafora történetéből
      [The invisible hand - extracts from the history of a metaphor]      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 801-844.
    7. Winfield, Mark & Dolter, Brett, 2014. "Energy, economic and environmental discourses and their policy impact: The case of Ontario׳s Green Energy and Green Economy Act," Energy Policy, Elsevier, vol. 68(C), pages 423-435.
    8. Luigi Zingales, 2015. "Does Finance Benefit Society?," NBER Working Papers 20894, National Bureau of Economic Research, Inc.
    9. Thomas Zotter & Sepp Zuckerstätter, 2012. "Die Kultur der organisierten Verantwortungslosigkeit. Oder vom Unglück, Recht zu haben," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 38(2), pages 291-297.
    10. Mariana Mazzucato, 2015. "From Market Fixing to Market-Creating: A New Framework for Economic Policy," SPRU Working Paper Series 2015-25, SPRU - Science Policy Research Unit, University of Sussex Business School.
    11. Zaman, Md Monowaruz, 2010. "An Unbiased Pareto Improvement strategy for poverty alleviation," MPRA Paper 27800, University Library of Munich, Germany.
    12. Zaman, Md Monowaruz, 2008. "Welfare dynamics based on a new concept of inefficient equilibrium," MPRA Paper 11303, University Library of Munich, Germany.
    13. Pim den Hertog & Luis Rubalcaba, 2010. "Policy Frameworks for Service Innovation: A Menu-Approach," Chapters,in: The Handbook of Innovation and Services, chapter 26 Edward Elgar Publishing.
    14. Bloise, Gaetano & Reichlin, Pietro, 2005. "Risk and intermediation in a dual financial market economy," Research in Economics, Elsevier, vol. 59(3), pages 257-279, September.
    15. Miura, Shinji, 2018. "Welfare economic foundation of hoarding loss by money circulation optimization," MPRA Paper 88443, University Library of Munich, Germany.
    16. López, Ramón & Schiff, Maurice, 2013. "Interactive dynamics between natural and man-made assets: The impact of external shocks," Journal of Development Economics, Elsevier, vol. 104(C), pages 1-15.
    17. repec:clr:wugarc:y:2012:v:38i:2p:291 is not listed on IDEAS
    18. Alexander Radygin & Revold Entov, 2014. "The Fundamental Privatization Theorem: Ideology, Evolution, Practice," Working Papers 0087, Gaidar Institute for Economic Policy, revised 2014.

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