Theory of the second best
In
Implications
In an economy with some uncorrectable market failure in one sector, actions to correct market failures in another related sector with the intent of increasing economic efficiency may actually decrease overall economic efficiency. In theory, at least, 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 usual policy. This suggests that economists need to study the details of the situation before jumping to the theory-based conclusion that an improvement in market perfection in one area implies a global improvement in efficiency.[4]
Application
Even though the theory of the second best was developed for the
References
- OCLC 615371821.
- JSTOR 2296233.
- ^ Krugman, Paul (June 22, 2014). "The Big Green Test - Conservatives and Climate Change". The New York Times. Retrieved 27 June 2014.
- ^ "Making the second best of it". Free Exchange. Economist. August 21, 2007. Retrieved 27 June 2014.