Abstract

BUSTAMANTE TORRES, Jorge. Pareto Optimality and Fundamental Welfare Theorems: A Critical Review. Ens. Econ. [online]. 2017, vol.27, n.51, pp.163-178. ISSN 0121-117X.  https://doi.org/10.15446/ede.v27n51.69110.

This paper analyzes the fundamental welfare theorems from a critical point of view as it aims to show the lack of applicability of the theory and some of its unsolved internal problems (it seems that this theory has arrived at a dead end). In the first place, we analyze the conditions of the competitive model, the assumptions of the Pareto efficiency and their meanings and implications in terms of efficiency and equity. Then, we return to the discussion that arises from Arrow's impossibility theorem about the assumptions regarding individual preferences and the construction of a social welfare function. Finally, we examine critical points of view in regard to the application of welfare theorems in reality, specifically the general theory of second best and the view of a dynamic economy.

JEL: D, D6, D630.

Keywords : efficiency; welfare; equity; competitive markets; social choice.

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