Piecemeal Policy in the Theory of Second Best.

The remarks of Bohm, McManus and Negishi, as well as the earlier pieces by Lipsey and Lancaster and ourselves, bear witness to the fact that there is a lack of a consensus regarding the purpose or aim of a theory of second best. Further, many of the critics of and contributors to this emerging theory give no indication of having considered the practical difficulties associated with the policy implications of either their work or proposals. The analysis of second best problems has largely been conducted in an idealized world where it is implicitly assumed that the policy-maker has all knowledge and is a beneficient as well as omniscient being. It can be argued that this lack of a concern for the practical aspects of policy, as well as the implicit assumption of an all-knowing policy maker, are basic causes of this lack of a consensus. Where there is no agreement on purpose, both confusion and apparent contradictions are likely to be found. The primary goal of this essay is to express and argue for the acceptance of one particular view of the purpose of a theory of second best. It is believed that the relevant issues can be better understood, the apparent contradictions resolved, and much of the confusion cleared away by viewing the problem in this light. Of course, the secondary goal of commenting upon the remarks of the critics of our paper is not overlooked; and in practice these two goals are not always distinguishable. [ABSTRACT FROM AUTHOR]