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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. Mariana Mazzucato & Caetano C.R. Penna, 2016. "Beyond market failures: the market creating and shaping roles of state investment banks," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 19(4), pages 305-326, October.
    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 & Deneuluin, Severine, "undated". "Individual Motivation, Its Nature, Determinants and Consequences for within Group Behaviour," WIDER Working Papers 295512, United Nations University, World Institute for Development Economic Research (UNU-WIDER).
    4. Ana Miranda, 2019. "Compras públicas de alimentos a pequeños agricultores: revisión bibliográfica y buenas prácticas," Working Papers Spanish 176, International Policy Centre for Inclusive Growth.
    5. 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.
    6. Bazhanov, Andrei V., 2015. "Inefficiency and sustainability," Resources Policy, Elsevier, vol. 45(C), pages 210-216.
    7. 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.
    8. 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.
    9. Ana Miranda, 2018. "Public food procurement from smallholder farmers: literature review and best practices," Working Papers 176, International Policy Centre for Inclusive Growth.
    10. Luigi Zingales, 2015. "Does Finance Benefit Society?," NBER Working Papers 20894, National Bureau of Economic Research, Inc.
    11. 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.
    12. 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.
    13. Zaman, Md Monowaruz, 2010. "An Unbiased Pareto Improvement strategy for poverty alleviation," MPRA Paper 27800, University Library of Munich, Germany.
    14. Zaman, Md Monowaruz, 2008. "Welfare dynamics based on a new concept of inefficient equilibrium," MPRA Paper 11303, University Library of Munich, Germany.
    15. Nasreen Nawaz, 2021. "Efficiency on the dynamic adjustment path in a financial market," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 45(1), pages 49-74, January.
    16. Pim den Hertog & Luis Rubalcaba, 2010. "Policy Frameworks for Service Innovation: A Menu-Approach," Chapters, in: Faïz Gallouj & Faridah Djellal (ed.),The Handbook of Innovation and Services, chapter 26, Edward Elgar Publishing.
    17. 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.
    18. Miura, Shinji, 2018. "Welfare economic foundation of hoarding loss by money circulation optimization," MPRA Paper 88443, University Library of Munich, Germany.
    19. Aurora Liu Genin & Justin Tan & Juan Song, 0. "State governance and technological innovation in emerging economies: State-owned enterprise restructuration and institutional logic dissonance in China’s high-speed train sector," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 0, pages 1-25.
    20. 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.
    21. repec:clr:wugarc:y:2012:v:38i:2p:291 is not listed on IDEAS
    22. 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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