组织经济学与管理学ch03 Welfare theorem.pptVIP

Chapter 3 Welfare theorem George Hendrikse Figure III.1: Positioning of part II Figure 2.1: Scheme of thought The general equilibrium model is based on two concepts Individual behaviour. (Behaviour is the outcome of maximisation subject to constraints.) Market. (Exchange conditions adjust until decisions by individuals are mutually consistent, i.e. demand equals supply.) Two results about situations in which markets work perfectly Fundamental welfare theorem Coase theorem Benchmarks The importance of these results resides in the precise specification of circumstances/assumptions when markets work efficient/perfectly. The various assumptions will be relaxed in Parts III-VII in order to investigate how real business problems can be positioned and addressed. Welfare theorem If each firm maximises its profits, knowing the prices and its own production technology; each consumer maximises utility, knowing the prices and his own preferences; income and prices are such that demand equals supply for every good and service, then the resulting allocation of goods and services is Pareto-efficient. The welfare theorem specifies the assumptions of an ideal world where all coordination and motivation problems are solved. Remarkable features Only local information and system-wide prices are needed to establish coordination of decisions. Pursuit of self-interest gives consumers and producers the best incentives (motivation) to take good decisions. Conclusion Assumptions Large number of consumers and producers Law of one price Anonimity Production function Communication structure Contracts (complete contingent) Complete rationality Assumptions (cont’d) Price formation (Walrasian auctioneer) Decentralisation Coordination Complete set of markets Externalities Self-intrest and Pareto-optimality All goods and services can be exchanges/alienated Irrelevance 1. Large number of consumers and producers Reality 2. Law of one price i.e. there is one price for each commodity. Real