Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 2/2021: A perfectly competitive economy is an economy without welfare relevant endogenous learning

Karine Nyborg ()
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Karine Nyborg: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway

Abstract: I demonstrate a straightforward but apparently widely unrecognized implication of the standard requirements for perfect competition: an economy in which consumers can choose to learn is generally not perfectly competitive. In particular, if endogenous welfare relevant learning is feasible, the economy cannot be perfectly competitive unless identical learning choices by all consumers are guaranteed. If the new information is not shared with everyone, asymmetric information arise; if information is shared, externalities arise. The standard conditions for the two fundamental welfare theorems, thus, implicitly preclude heterogeneous welfare relevant learning decisions.

Keywords: Perfect competition; fundamental welfare theorems; learning; symmetric information; externalities

JEL-codes: D41; D50; D60; D61; D62; D82

19 pages, May 3, 2021

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