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The political economy theorem

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  • Saccal, Alessandro

Abstract

Welfare maximisation is constrained by the ultimate frontier of efficient allocations, with a unique, interior optimum. By the second welfare theorem, such an optimum depends on a specific wealth distribution out of innumerable ones at given prices, whereby the state cannot refrain from redistributing. Such has long been known by the profession, but it never received a mathematical formalisation, which this article takes up. Building on the literature, this research also presents two simplified proofs to the two welfare theorems and a mathematical formalisation of the resolution to the compromise between equity and efficiency, for the additional constraint binds the social welfare function in equity and it originates the ultimate possibility frontier in efficiency.

Suggested Citation

  • Saccal, Alessandro, 2020. "The political economy theorem," MPRA Paper 101037, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:101037
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    References listed on IDEAS

    as
    1. David M. Kreps, 2012. "Microeconomic Foundations I: Choice and Competitive Markets," Economics Books, Princeton University Press, edition 1, volume 1, number 9890.
    2. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    competitive equilibrium; Pareto efficiency; political economy; social welfare; utility possibility; wealth distribution.;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • P46 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Consumer Economics; Health; Education and Training; Welfare, Income, Wealth, and Poverty
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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