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The Fundamental Theorems of Modern Welfare Economics, Historically Contemplated
Ist Teil von
History of political economy, 2007-07, Vol.39 (2), p.185-207
Ort / Verlag
Durham: Duke University Press
Erscheinungsjahr
2007
Link zum Volltext
Quelle
EBSCOhost Business Source Ultimate
Beschreibungen/Notizen
Modern welfare economics is formally summed up in two so-called fundamental theorems. The first fundamental theorem states that, subject to certain exceptions - such as externalities, public good, economies of scale, and imperfect information - every competitive equilibrium is Pareto-optimal. The second fundamental theorem states that every Pareto-optimal allocation of resources is an equilibrium for a perfectly competitive economy, provided a redistribution of initial endowments and property rights is permitted; alternatively expressed, every Pareto-optimal allocation of resources can be realized as the outcome of competitive equilibrium after a lump-sum transfer of claims on income. The purpose of this article is to pin down the history of the two fundamental theorems of modern welfare economics and in so doing, to assess their continued relevance, if any. Their philosophical foundations are actually somewhat shaky, and we will show that economists are by no means agreed on their significance.