SEPARABILITY HYPOTHESIS AND THE THEORY OF SECOND BEST

Abstract

To find the way to obtain the maximization of social welfare has been a focus of welfare economics. Pareto optimal conditions are usually considered a sufficient condition for the Welfare maximization, i.e., the first best solution. Under the mixed economy, however, it is almost impossible to reach this “Utopia” (pareto optimum) with institutional constraints such as monopoly and taxes. The second best solution then becomes the realistic and interesting problem few economists have paid attention to in the last two decades. In studying the second best theory, the following question arises: If a constraint, which prevents the satisfaction of at least one of the paretian conditons, is introduced into a general equilibrium system, which second best conditions depart from the corresponding paretian condition?

Citation

FONG‐SHENG WANG, L. (1978), "SEPARABILITY HYPOTHESIS AND THE THEORY OF SECOND BEST", Studies in Economics and Finance, Vol. 2 No. 2, pp. 65-76. https://doi.org/10.1108/eb028602