Assessment of Neoclassical Welfare Economics
This seems an appropriate place to assess how far the theories presented in the first four chapters provide a useful guide to economic policy. The Paretian conditions described in Chapter 1 yielded some criteria for welfare judgements, even though their basis is rather narrow; they can be extended using a compensation principle, but this involves substantial distributional judgements. An even greater drawback in practice is the lack of guidance provided by Pareto’s theory for the second-best situation, which forms the background for most economic decisions. These considerations do not create an encouraging impression for theorist or practitioner in the field of welfare economics, and it may be helpful to try and assess the arguments in a wider context.
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