Interindustry Flows and Meade's Second-Best Index.

The international economist's traditional way of evaluating general equilibrium situations away from Pareto optimum is either to use a utility possibility approach and a neoclassical general equilibrium model (see, for example, Vanek 1965), or to use Professor Meade's second-best index. Meade developed the latter in his Theory of Customs Unions (1955) for a situation where many individuals are producers and consumers simultaneously of all products; the productive process in the form of a production function of one kind or another is never explicitly introduced. The purpose of this paper is to generalize Meade's method to include explicitly the technological conditions, and in particular to allow the model to include interindustry flows. The obvious first application of the generalized results is the evaluation of the impact of alternative patterns of effective protection in international trade. However, the results are perfectly general and can be applied to any suboptinal situations; that is, situations where there are divergences between marginal disutilities in production and marginal utilities in consumption. [ABSTRACT FROM AUTHOR]