Talk:Theory of the Second Best

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I am wondering: In this sentence of the article: "it may be better to let two market imperfections cancel each other out rather than making an effort to fix either one. Thus, it may be optimal for the government to intervene in a way that is contrary to laissez faire policy.",

shouldn't it mean: a way that is conformed to laissez-faire policy?. Wouldn't it make more sense?

(MIKO)

—Preceding unsigned comment added by 84.74.50.57 (talk) 16:59, 3 June 2008 (UTC)

This entry is incomplete as it stands, and in a way which generates a political bias i.e. in favour of state intervention.

Another way of looking at the Lipsey/Lancaster point is as follows. If you are not at a Pareto-optimal point for the economy, you don't know whether any change that doesn't actually take you onto an optimal point is going to improve efficiency (i.e. make everyone better off). Even when you move in what appears to be the direction of greater efficiency, e.g. by changing all controllable parameters to an average of where you are now and where a Pareto optimum is, you might be making things less efficient i.e. making everyone worse off.

So another moral (apart from the one given) is that, when you have a market that is already regulated or otherwise distorted, it is not necessarily a good idea to move in the direction of less distortion. You can be sure that if you can get to a Pareto optimum, that is a good thing (at least in terms of efficiency); apart from that, you can't be certain of the effects of different policy changes. This is a consequence of the severely restricted conclusions of Pareto theory.

In fact, the moral given in the entry is questionable as stated. It isn't really the case that intervention to move things in a direction different from the pro-market one is sometimes a good idea. It's just that such a move might be a good thing, only neither the government nor anyone else can ever know if it would or not.

FWadel 15:33, 1 March 2007 (UTC)