There are no optimal solutions for real-world economic problems. There are only second-best (or worse) solutions because the requirements for optimality (in markets or government) can never be met in the real world. Sometimes markets are second best and sometimes government is second best.
- Defending Markets [More...]
- "Nobody would seriously defend a market economy because it is optimal. Instead, the intelligent defence of markets is that they are (often) the least bad ways of coping [...] Now, of course, the notion that markets are always a less sub-optimal institution than the state is silly."
- Making the second best of it [More...]
- "To say that we live in a second-best world is just to say we live in the real world, not a blackboard model. Good policy advice in the real world is at least as much applied moral philosophy, psychology, and anthropology as it is applied economics. And if piecemeal policy advising is an art, then a useful wonk is a sort of artist, but in the way a good surgeon is an artist, not the way a novelist is."
- Rationality: A Second-Best Theorem [More...]
- "To see what's going on here, remember Lancaster and Lipsey's theory of the second best. They show that if there is a market imperfection welfare might be improved by introducing another imperfection. For example, if there is a monopoly, price controls might be welfare-enhancing."
... every public good problem [has an intractable second-best nature]. The only way to avoid the evident dangers and inefficiencies of government funding is to take the risk of private monopolistic behavior. No a priori answer tells us which loss is greater.
Richard Epstein, "The Libertarian Quartet"