Second Fundamental Welfare Theorem

Second Fundamental Welfare Theorem

The theory that one can achieve any desired Pareto efficient outcome by a one-time redistribution of wealth, followed by a reversion to the invisible hand of the market. Pareto efficiency is the allocation of resources such that one cannot improve the lot of one economic actor without hurting the lot of another economic actor.
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The Chicago approach deploys social welfare theory's first and second fundamental welfare theorems, the economist's theory of the State, in constructing a positive and normative approach to law and economics.
(50) It follows that judicial decisions, changes in statutory law, and economic policies that are informed by the first and second fundamental welfare theorems must be regarded as ad hoc.
On the one hand, while the theory's fundamental constructs-the efficiency frontier and the social-welfare function-are indeterminate, the first and second fundamental welfare theorems are, nevertheless, deployed to justify both governmental market interventions and income redistribution schemes.
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