Accessible Pareto-Improvements: Using Market Information to Reform Inefficiencies

Michael Mandler

No 1320, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We study Pareto improvements whose implementation requires knowledge of only market prices and traded quantities, not utility and demand functions. Quantity stabilization gives agents the right to repeat the net trades they previously conducted, but requires policymakers to have records of those trades. While reasonable in some partial equilibrium contexts, such an assumption is implausible in general equilibrium. To diminish informational requirements further, we also consider price stabilization, which holds constant the relative prices that consumers face. Although price stabilizations do not achieve first-best efficiency, they lead to Pareto-improvements and production efficiency. Moreover, the production efficiency advantage persists under price stabilization but not under quantity stabilization when some firms are not profit-maximizers; this difference can be critical in transition policies for planned economies. In addition to planning, we consider several other applications of quantity and price stabilization, both partial equilibrium and general equilibrium: removal of rent controls, deregulation of a cross-subsidizing public utility, and the entry of an autarkic economy into world trade.

Keywords: Pareto improvements; transition economies; rent control; deregulation (search for similar items in EconPapers)
JEL-codes: D50 D60 F10 H11 H21 L50 P30 R13 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2001-08
New Economics Papers: this item is included in nep-ent, nep-net, nep-pbe and nep-tra
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