Partial‐Equilibrium Welfare Analysis

Charles Blackorby

Journal of Public Economic Theory, 1999, vol. 1, issue 3, 359-374

Abstract: 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.

Date: 1999
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