Glossary · Micro · Efficiency and trade

Second welfare theorem

Any Pareto efficient allocation can be reached as a competitive equilibrium if you first redistribute starting wealth with lump-sum transfers. Markets can deliver any efficient outcome, so fairness can be handled by the starting split rather than by overriding prices.

Also called: lump-sum redistribution

Taught in: Second Welfare Theorem

Related terms

First welfare theoremPareto efficiencyContract curve and the core

More from efficiency and trade

Absolute advantageAutarkyComparative advantageEdgeworth boxPartial vs general equilibrium

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