| Abstract: | This paper first develops a political model rationalizing conventional second-best constraints on the controllability of certain sectors despite the perfect governmental information assumptions underlying conventional second-best policy intervention. It then shows that such intervention implies a logical paradox (i. e. an inconsistency with the underlying political model) that can be removed only by making sufficient additional sectors uncontrollable that classical optimality conditions apply to the remaining, controllable sectors. Classical, piecemeal policy criteria therefore hold even under the extreme informational perfections underlying conventional second-best theory. A brief application of the general model helps us understand and evaluate recent U. S. energy policy. |
