In this volume, some of the world's finest economists address a
theme which is once again at the economic policy, namely the
appropriate role for policy in a market economy. Can Adam Smith's
'invisible hand' mechanism be expected to allocate resources
efficiently to meet the needs of society and is the role of
government therefore limited at best? The authors draw on recent
theoretical advances in the study of imperfect information and
stratgic behavior to argue that the models of classical welfare
economics are insufficient as a framework for understaning modern
The first two chapters by joseph Stiglitz and Frank Hahn
represent assaults on the fundamental theorems of welfare
economics: the notion of pareto-efficiency and the ability of the
price mechanism to achieve it. Taking this as their lead,
subsequent chapters focus on specific examples of market failure -
the environment, the persistence of high levels of unemployment and
the strategic behavior of governments in the making of
international economic policy.
The book represents a remarkable and accessible insight into the
dilemmas of modern economics. It also demonstrates the fundamental
role economic analysis has to play in the understanding of real
problems and the formulation of appropriate policy.
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