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Partial‐Equilibrium Welfare Analysis
Author(s) -
Blackorby Charles
Publication year - 1999
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/1097-3923.00016
Subject(s) - partial equilibrium , economics , economic surplus , general equilibrium theory , welfare , simple (philosophy) , outcome (game theory) , microeconomics , mathematical economics , econometrics , market economy , philosophy , epistemology
The use of partial equilibrium models is common, and, typically, efficiency is characterized by maximizing consumer plus producer surplus (or, sometimes, gross consumer surplus). The analysis appeals—implicitly or explicitly—to the concept of efficiency derived from general equilibrium models. Using the tax‐reform methodology, it is shown in a simple general equilibrium model that, if the second‐best outcome is not the first‐best one, the sum of consumer plus producer surplus cannot lead an economy to its true second‐best optimum.