Welfare Economics and Second-Best Theory

The book "Welfare Economics and Second-Best Theory" by Richard S. Markovits provides a comprehensive analysis of economic efficiency in the context of second-best theory. It examines how non-governmental behavior and government policies can be evaluated for economic efficiency. The author develops a protocol for analyzing economic efficiency, characterized by three essential features. First, a variety of categories of economic inefficiency are considered separately, many of which are overlooked in conventional analyses. Second, the impact of behavior or policies on these categories is analyzed, particularly concerning the distortions caused by various Pareto imperfections. Third, the protocol is described as a third-best solution, stipulating that research projects should only be undertaken when the expected efficiency gains exceed the projected allocation costs. The book illustrates how this protocol deviates from common approaches and the different conclusions that arise from it.