On the second optimality theorem of welfare economics (Q1083013): Difference between revisions

The second optimality theorem of welfare economics states that every Pareto-optimal allocation can be represented as a Walras equilibrium. The paper is concerned with the question to what extent it remains valid for the general case of a production economy where all consumers may be locally satiated. The notion of generalized equilibrium is introduced, which does not require firms to produce at a profit maximum. The main results are as follows: each Pareto-optimal allocation is a generalized equilibrium; under some additional assumptions each Pareto-optimal allocation is Pareto-equivalent to (i.e. for any consumer is indifferent from) some Walras equilibrium allocation.