ABSTRACT
The main relevance to this chapter relates to whether any logical or operational meaning can be attached to the Social Welfare Function used to choose the 'social optimum' from the set of Pareto-optimal allocations of resources. It summarise the key results of Paretian welfare economic theory and then examine the use which IEA authors make of the theory in advancing the 'case for the market'. The case for the market has two main strands; the first is a libertarian argument: the market allows the expression of individual choice and personal responsibility. The second strand is the useful role which markets can play in securing economic efficiency. The neo-classical theory of 'market failure' emphasises externalities, public goods, monopoly and 'second-best' problems. Emphasis has been placed on how the introduction of externalities, public goods and second-best remove much of the normative content of the case for the market. The perfectly functioning market economy satisfies the sufficient conditions for overall Pareto-optimality.
