A 1956 paper by Richard Lipsey and Kelvin Lancaster posed a “general theorem” of this concept, arguing that when one condition for Pareto optimality is unmet, all of the other optimality conditions change as well. For 10 points each:
[10h] Give this sometimes-hyphenated term from welfare economics and policy analysis. A paper by Dani Rodrik argues that developing nations should use “institutions” of this type to adapt to context-specific market and governance failures.
ANSWER: second best [accept “The General Theory of Second Best”; accept “Second Best Institutions”; reject “best”; reject “first best”]
[10e] By contrast, in the “first best” world, the Pareto optimum is also one of these scenarios, in which no agent can unilaterally improve their position.
ANSWER: Nash equilibriums [or Nash equilibria; accept general equilibrium]
[10m] Bengt Holmström and Oliver Hart won a Nobel in 2016 for work that solved for the “second-best” form of these documents. A theoretical “complete” one of these documents accounts for all possible future states of the world.
ANSWER: contracts [accept (in)complete contracts]
<Matt Jackson, Social Science>