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Generality Versus Context Specificity: First, Second and Third Best in Theory and Policy

Resource type
Date created
2016-09-06
Authors/Contributors
Abstract
Second-best theory established that a policy's effect on community welfare (or any other objective function) varies with its specific context. In contrast, Ng argues that fulfilling first-best conditions piecemeal is optimal whenever the policy maker's information is insufficient to determine the direction of the change in the variable under consideration that will raise welfare, irrespective of the conditions in that market. We argue: (1) that Ng's own assumptions imply not that first-best conditions should be established under these circumstances, but that the status quo should be maintained; (2) that when Ng's key assumption is altered to be empirically relevant, all policy decisions become fully context-specific; (3) that Woo's argument for accepting Ng's conclusions in spite of point (2) is incorrect. The conclusion discusses valid uses of piecemeal welfare theory in spite of second best.
Document
Published as
Forthcoming in in Special Issue: Second and third Best theories:Criticisms and Applications, Pacific Economic Review, 22(2)
Publication title
Pacific Economic Review
Document title
Generality Versus Context Specificity: First, Second and Third Best in Theory and Policy
Date
2016
Volume
22
Issue
2
Copyright statement
Copyright is held by the author(s).
Scholarly level
Peer reviewed?
Yes
Language
English
Member of collection

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