Lecture 20: Failure of Welfare Theorems

Om kurset

When there is pollution, missing markets, externalities in caring about the outcomes for other people (jealousy or altruism), or an infinite number of agents from overlapping generations of finite-lived agents, then the equivalence between the class of competitive equilibria with transfers and the set of Pareto optimal allocations can be broken. But likewise, the link can be restored with markets in rights and appropriate market design.