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SEPARABILITY, INTERDEPENDENCE, AND THE THEORY OF SECOND BEST,
PURDUE UNIV LAFAYETTE IND KRANNERT GRADUATE SCHOOL OF INDUSTRIAL ADMINISTRATION
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The problem of the Second Best is treated parallel to the theory of perfect competition that is, it is considered whether a competitive equilibrium results in a Second Best maximization and whether a competitive equilibrium exists in the presence of deviant behavior. One purpose is to make more clear the meaning of the problem of Second Best and to consider under what conditions piecemeal policy is appropriate. Examples of different types of piecemeal approaches are given. Last, it is considered whether the concept of Second Best is meaningful if instead of a static model of the economy, models containing uncertainty or dynamic behavior are used.
APPROVED FOR PUBLIC RELEASE