Editing Theory of the second best (section)

{{Short description|Branch of economics studying next-best alternatives}}
{{Redirect|Second best|the films|Second Best (1994 film)|and|Second Best (2004 film)}}

In [[welfare economics]], the '''theory of the second best''' concerns the situation when one or more [[perfect market|optimality conditions]] cannot be satisfied.<ref>{{Cite book|last=Heath|first=Joseph|url=https://www.worldcat.org/oclc/615371821|title=Filthy lucre : economics for people who hate capitalism|date=2009|publisher=HarperCollins|isbn=978-1-55468-769-5|location=Toronto|oclc=615371821}}</ref> The economists [[Richard Lipsey]] and [[Kelvin Lancaster]] showed in 1956 that if one optimality condition in an [[economic model]] cannot be satisfied, it is possible that the next-best solution involves changing other variables away from the values that would otherwise be optimal.<ref name="Lipsey" /> Politically, the theory implies that if it is infeasible to remove a particular market distortion, introducing one or more ''additional'' market distortions in an interdependent market may partially counteract the first, and lead to a more [[Pareto efficiency|efficient outcome]].<ref>{{cite web|url=https://www.nytimes.com/2014/06/23/opinion/paul-krugman-conservatives-and-climate-change.html|title=The Big Green Test - Conservatives and Climate Change|date=June 22, 2014|website=[[The New York Times]]|last1=Krugman|first1=Paul|author-link1=Paul Krugman|accessdate=27 June 2014}}</ref>