Second-best analysis with markets in disequilibrium: Public sector pricing in a Keynesian regime
(1985) European Economic Review — Vol. 29, p. 263-301 (1985)
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- (en) The paper develops pricing rules for a public sector subject to a budget constraint, in an economy where the private sector experiences Keynesian unemployment (excess supply of labour and of commodities). Both second-best and welfare-improving pricing rules are studied. It is found that such rules can be defined in operational terms. In general, they are quite complex, involve quantities which are not directly observable (reservation wages and prices), and require evaluation of income and employment multipliers. The general equilibrium approach to second-best theory thus involves standard macroeconomic concepts and techniques. Some discussion of methodological issues and of policy objectives (inflation versus unemployment) is offered. In order to facilitate interpretation, the corresponding results for an economy with a competitive private sector are first restated.
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Dreze, J. (1985). Second-best analysis with markets in disequilibrium: Public sector pricing in a Keynesian regime. European Economic Review, 29, 263-301. https://doi.org/10.1016/0014-2921(85)90042-X (Original work published 1985)