IDEAS home Printed from https://ideas.repec.org/a/kap/itaxpf/v14y2007i4p349-364.html
   My bibliography  Save this article

Reflections on the general theory of second best at its golden jubilee

Author

Listed:
  • Richard Lipsey

Abstract

The origin of the second best article is described and criticisms assessed. Distortions making impossible the achievement of either first or second best optima are outlined. Attempts to establish the applicability of first best rules are criticised, as are general rules for making piecemeal efficiency improvements. Both often use models containing empirically invalid assumptions and a selected few of the full set of distortions. Practical policy advice requires more parochial objective functions than community welfare; must rely on formal and appreciative theory, empirical evidence, and large doses of judgment; and should concentrate on making piecemeal improvements in context-specific situations. Copyright Springer Science+Business Media, LLC 2007

Suggested Citation

  • Richard Lipsey, 2007. "Reflections on the general theory of second best at its golden jubilee," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(4), pages 349-364, August.
    • Handle: RePEc:kap:itaxpf:v:14:y:2007:i:4:p:349-364
    DOI: 10.1007/s10797-007-9036-x
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10797-007-9036-x
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10797-007-9036-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Eaton, B Curtis & Lipsey, Richard G, 1976. "The Non-Uniqueness of Equilibrium in the Loschian Location Model," American Economic Review, American Economic Association, vol. 66(1), pages 71-93, March.
    2. Robin Boadway, 1997. "Public Economics and the Theory of Public Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 753-772, November.
    3. Eaton, B Curtis & Lipsey, Richard G, 1978. "Freedom of Entry and the Existence of Pure Profit," Economic Journal, Royal Economic Society, vol. 88(351), pages 455-469, September.
    4. Curtis Eaton, B. & Lipsey, Richard G., 1989. "Product differentiation," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 12, pages 723-768, Elsevier.
    5. Mark Blaug, 2007. "The Fundamental Theorems of Modern Welfare Economics, Historically Contemplated," History of Political Economy, Duke University Press, vol. 39(2), pages 185-207, Summer.
    6. L. Athanasiou, 1966. "Some Notes On The Theory Of Second Best," Oxford Economic Papers, Oxford University Press, vol. 18(1), pages 83-87.
    7. Lipsey, Richard G. & Carlaw, Kenneth I. & Bekar, Clifford T., 2005. "Economic Transformations: General Purpose Technologies and Long-Term Economic Growth," OUP Catalogue, Oxford University Press, number 9780199290895.
    8. Bhagwati, Jagdish N & Ramaswami, V K & Srinivasan, T N, 1969. "Domestic Distortions, Tariffs, and the Theory of Optimum Subsidy: Some Further Results," Journal of Political Economy, University of Chicago Press, vol. 77(6), pages 1005-1010, Nov./Dec..
    9. O. A. Davis & A. B. Whinston, 1967. "Piecemeal Policy in the Theory of Second Best," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 34(3), pages 323-331.
    10. Robin Boadway, "undated". "The Role of Second-Best Theory in Public Economics," EPRU Working Paper Series 95-06, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    11. McKee, Michael & West, Edwin G, 1981. "The Theory of Second Best: A Solution in Search of a Problem," Economic Inquiry, Western Economic Association International, vol. 19(3), pages 436-448, July.
    12. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    13. P. Bohm, 1967. "On the Theory of "Second Best"," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 34(3), pages 301-314.
    14. Otto A. Davis & Andrew B. Whinston, 1965. "Welfare Economics and the Theory of Second Best," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(1), pages 1-14.
    15. Richard G. Lipsey, 1997. "Microeconomics, Growth and Political Economy," Books, Edward Elgar Publishing, number 1225.
    16. B. C. Eaton & Richard G. Lipsey, 1997. "On the Foundations of Monopolistic Competition and Economic Geography," Books, Edward Elgar Publishing, number 1233.
    17. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 2, number 2.
    18. Hatta, Tatsuo, 1986. "Welfare effects of changing commodity tax rates toward uniformity," Journal of Public Economics, Elsevier, vol. 29(1), pages 99-112, February.
    19. Harberger, Arnold C, 1971. "Three Basic Postulates for Applied Welfare Economics: An Interpretive Essay," Journal of Economic Literature, American Economic Association, vol. 9(3), pages 785-797, September.
    20. Faith, Roger L & Thompson, Earl A, 1981. "A Paradox in the Theory of Second Best," Economic Inquiry, Western Economic Association International, vol. 19(2), pages 235-244, April.
    21. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 1, number 1.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Richard G. Lipsey, 2013. "Some contentious issues in theory and policy in memory of Mark Blaug," Chapters, in: Marcel Boumans & Matthias Klaes (ed.), Mark Blaug: Rebel with Many Causes, chapter 6, pages 31-62, Edward Elgar Publishing.
    2. Gábor Péli & Bart Nooteboom, 1997. "Simulation of Learning in Supply Partnerships," Computational and Mathematical Organization Theory, Springer, vol. 3(1), pages 43-66, March.
    3. Martin Gaynor, "undated". "What Do We Know About Competition and Quality in Health Care Markets?," GSIA Working Papers 2006-E62, Carnegie Mellon University, Tepper School of Business.
    4. Wai Woo, 2011. "Status and welfare under monopolistic competition," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 36(2), pages 227-239, February.
    5. Yi Deng & Gabriel Picone, 2013. "Strategic Clustering and Competition by Alcohol Retailers: An Emperical Anlysis of Entry and Location Decisions," Working Papers 1013, University of South Florida, Department of Economics.
    6. Harald Trabold, 1994. "Technical Progress, Innovation and Product Differentiation in a Ricardian Trade Model with a Continuum of Goods," Discussion Papers of DIW Berlin 95, DIW Berlin, German Institute for Economic Research.
    7. Boyer, Marcel & Mahenc, Philippe & Moreaux, Michel, 1995. "Entry Blockading Locations," IDEI Working Papers 53, Institut d'Économie Industrielle (IDEI), Toulouse.
    8. Chikako Yamauchi, 2010. "The availability of child care centers, perceived search costs and parental life satisfaction," Review of Economics of the Household, Springer, vol. 8(2), pages 231-253, June.
    9. Asplund, Marcus & Sandin, Rickard, 1999. "Competition in interrelated markets: An empirical study," International Journal of Industrial Organization, Elsevier, vol. 17(3), pages 353-369, April.
    10. Scarpetta, Stefano & Tressel, Thierry, 2004. "Boosting productivity via innovation and adoption of new technologies : any role for labor market institutions?," Social Protection Discussion Papers and Notes 29144, The World Bank.
    11. Manez, J.A. & Waterson, M., 2001. "Multiproduct Firms and Product Differentiation: a Survey," The Warwick Economics Research Paper Series (TWERPS) 594, University of Warwick, Department of Economics.
    12. Klos, Tomas B. & Nooteboom, Bart, 2001. "Agent-based computational transaction cost economics," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 503-526, March.
    13. Melvin Hinich & Michael Munger, 2006. "In memoriam: Otto “Toby” Davis, 1934–2006," Public Choice, Springer, vol. 128(3), pages 357-359, September.
    14. Roberto Cellini & Luca Lambertini, 2004. "Private And Social Incentives Towards Investment In Product Differentiation," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 6(04), pages 493-508.
    15. MORIKAWA Masayuki, 2019. "Price Competition vs. Quality Competition: Evidence from a Survey," Discussion papers 19075, Research Institute of Economy, Trade and Industry (RIETI).
    16. Harald Trabold, 1995. "Market Spreading versus Market Concentration: The Choice of Export Marketing Strategies Reconsidered," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 64(4), pages 573-589.
    17. Gillen, David & Morrison, William, 2003. "Bundling, integration and the delivered price of air travel: are low cost carriers full service competitors?," Journal of Air Transport Management, Elsevier, vol. 9(1), pages 15-23.
    18. Daisuke Hirata & Toshihiro Matsumura, 2011. "Price leadership in a homogeneous product market," Journal of Economics, Springer, vol. 104(3), pages 199-217, November.
    19. Louis-André Gérard-Varet & Rodolphe Dos Santos Ferreira & Claude d'Aspremont, 1991. "Concurrence en prix et équilibres cournotiens," Revue Économique, Programme National Persée, vol. 42(6), pages 967-996.
    20. Boadway, Robin, 1999. "Le rôle de la théorie de l’optimum du second rang en économie publique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 75(1), pages 29-65, mars-juin.

    More about this item

    Keywords

    Second best; Piecemeal policies; Context-specific policies; Distortions; Efficiency conditions; Optimality conditions; D60;
    All these keywords.

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:itaxpf:v:14:y:2007:i:4:p:349-364. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.