The third theorem of welfare economics : report from a fictional field study / Karine Nyborg (University of Oslo and IZA) ; IZA Institute of Labor Economics
VerfasserNyborg, Karine
KörperschaftForschungsinstitut zur Zukunft der Arbeit
ErschienenBonn, Germany : IZA Institute of Labor Economics, March 2019
Elektronische Ressource
Umfang1 Online-Ressource (31 Seiten) : Diagramme
SerieDiscussion paper ; no. 12269
 Das Dokument ist öffentlich zugänglich im Rahmen des deutschen Urheberrechts.
The third theorem of welfare economics [0.73 mb]
Verfügbarkeit In meiner Bibliothek
Zusammenfassung (Englisch)

The perfectly competitive market - a hypothetical situation free of market failure - is the basis for the two fundamental welfare theorems, and an important benchmark for economic theory. The radical abstractions of this idea, however, make its full implications hard to grasp. I address this using literary fiction. Part I discusses fiction as a tool for economic theory. Part II is a story about a journey to the perfectly competitive market. Part III develops main theoretical insights based on the story: First, complete social isolation is needed to preclude market failure. Second, the requirements of symmetric information and no external effects are extremely hard to reconcile, leading to an impossibility theorem: if trade is permitted anytime, and deliberate, welfare-relevant learning is feasible, no perfectly competitive market can exist.