Quasi Optimality
The Price We Must Pay for a Price System
Bibliographic Data
| ID | 10177846 |
|---|---|
| Authors | William J Baumol (corresponding author) |
| Year | 1979 |
| Volume | 87 |
| Issue | 3 |
| Pages | 578-599 |
| Publication date | 1979-06-01 |
| Open Access | No |
| Type | ARTICLE |
| Venue | Journal of Political Economy (JOURNAL) |
| Journal identifiers | ISSN: 0022-3808 • E-ISSN: 1537-534X |
| Publisher | University of Chicago Press (PUBLISHER • US) |
| DOI | 10.1086/260779 |
| OpenAlex | W2049163394 |
| Language | EN |
| Citations received | 3 |
| References cited | 3 |
The paper argues that, in the absence of lump-sum payments, a Pareto optimum is achievable by marginal-cost pricing and/or competitive equilibrium only when the boundary of the social production set happens to be linearly homogeneous near that optimal solution. Thus, contrary to widespread belief, both diminishing and increasing returns can be incompatible with achievement of optimality via parametric prices. Generally, the best that any set of fixed prices can achieve is the Ramsey solution constrained by Walras's law. The resulting welfare loss is the price society must pay for using a price system to allocate resources
Competitive equilibrium · Economics · Friedman rule · Homogeneous · Lump sum · Marginal cost · Mathematical economics · Microeconomics · Pareto principle · Payment · Set (abstract data type · Welfare · Computer Science · Decision-Making and Behavioral Economics · Economic theories and models · Economic Theory and Institutions · Mathematics
| Citations per year | 0.07 |
|---|---|
| Citation span | 1980 - 1999 (20) |
| Highly cited | No |