TY  - RPRT
        AU  - Nyborg, Karine
        TI  - The Third Theorem of Welfare Economics: Report from a Fictional Field Study
        PY  - 2019/Mar/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 12269
        UR  - https://www.iza.org/publications/dp12269
        AB  - 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.
        KW  - perfect competition
KW  - narratives
KW  - social interaction
KW  - symmetric information
KW  - complete contracts
KW  - labor markets
        ER  -