Theory of the second best

The theory of the second best (also theory of second-best or Best possible ) deals in the context of welfare economics with the opportunity to optimize under conditions of market failure nor the efficient allocation of resources. According to Lipsey and Lancaster (1956 ) states " the general theory of the second best ... that if one of the conditions for Pareto optimality is not possible, a second-best solution can be achieved only when departing from all other conditions. " This was from put the theory of efficient allocation derivable requirement in question that in all sectors of the economy competition should be established.

The second-best criterion therefore assumes that the fulfillment of the greatest possible number of efficiency conditions must not be expedient if already present unchanging distortion. Instead, the welfare loss can be minimized for the society by the state distorts other efficiency conditions in an appropriate manner.

It comes in addition to the present forms of market failure, their respective characteristics and other market properties. So can also be useful for intervention of the state in two simultaneously occurring and the intensification of market failures. If, however, compensate for two types of market failure, government intervention for the production of market- conditions, the efficiency could be detrimental. In many cases, Pareto - efficiency can not even reach approximately. Competition policy should take account not only for the sake of Pareto efficiency, but also aspects of justice and democracy.