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Can one prove that an idealized perfectly competitive market is Pareto efficient or is this taken as a definition?
by tossaway17 7y ago
Can one prove that an idealized perfectly competitive market is Pareto efficient or is this taken as a definition?
- sideshowb 7y agoThere's a proof... ...but then again (1) nobody has ever seen an idealized perfectly competitive market; (2) it's by no means clear that an idealized perfectly competitive market even serves as a useful approximation to the ones we have; (3) efficiency (in the narrow sense defined by efficient markets) is not the goal we want to be pursuing anyway.
- QuesnayJr 7y agoThere's a proof. The theorem is called the "First Welfare Theorem". There's also a "Second Welfare Theorem" that says that you can achieve any Pareto efficient outcome through a perfectly competitive market and lump-sum taxes.
- littlestymaar 7y agoIIRC Kenneth Arrow proved something around it yes.