Lange-Lerner-Taylor theorem

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In economic theory, the Lange-Lerner-Taylor theorem states that an economy in which all production is performed by the state, but in which there is a functioning price mechanism, has similar properties to a market economy under perfect competition, in that it achieves Pareto efficiency.

This result indicates that a socialist state can achieve one of the principal economic benefits of capitalism, and was an important theoretical force behind the development of market socialism.

Recently the economist Joseph Stiglitz has criticized the theorem for replicating many of the alleged errors of neoclassical economics. He suggests that because of economic problems resulting from costs of information and missing markets, market economies solve problems in a manner different from that described by the neoclassical analysis. Therefore, according to Stiglitz, the Lange-Lerner-Taylor theorem is a poor description of how the price mechanism will work in a market socialist economy to the same extent that neoclassical economics is a poor description of market capitalism.