%0 Report
        %A Nyborg, Karine
        %T The Third Theorem of Welfare Economics: Report from a Fictional Field Study
        %D 2019
        %8 2019 Mar
        %I Institute of Labor Economics (IZA)
        %C Bonn
        %7 IZA Discussion Paper
        %N 12269
        %U https://www.iza.org/publications/dp12269
        %X The perfectly competitive market – a hypothetical situation free of market failure – is the basis for the two fundamental welfare theorems, and an important benchmark for economic theory. The radical abstractions of this idea, however, make its full implications hard to grasp. I address this using literary fiction. Part I discusses fiction as a tool for economic theory. Part II is a story about a journey to the perfectly competitive market. Part III develops main theoretical insights based on the story: First, complete social isolation is needed to preclude market failure. Second, the requirements of symmetric information and no external effects are extremely hard to reconcile, leading to an impossibility theorem: if trade is permitted anytime, and deliberate, welfare-relevant learning is feasible, no perfectly competitive market can exist.
        %K perfect competition
%K narratives
%K social interaction
%K symmetric information
%K complete contracts
%K labor markets