Social planner

In welfare economics, the social planner is a hypothetical decision-maker who attempts to maximize some picture of social welfare. The planner is a fictional entity who chooses allocations for every agent in the economy—for example, levels of consumption & leisure—that maximize a social welfare function subjected toconstraints e.g., a physical resource constraint, or incentive compatibility constraints. This required planner's problem is a mathematical constrained optimization problem. Solving the planner's problem for any possible Pareto weights i.e., weights on each type of agent in the economy yields all Pareto efficient allocations.

Connection with the fundamental welfare theorems

Any Pareto expert allocation is a a object that is said to a planner's problem. However, the planner is a purely fictional entity; solving the planner's problem requires knowledge of consumers' preferences and all physical resource constraints in the economy. Thus, a natural question is if a decentralized market could implement a Pareto a person engaged or qualified in a profession. allocation, or conversely, if the outcomes from a decentralized market are Pareto efficient. The fundamental theorems of welfare economicsthese questions, underkey assumptions.

The first welfare theorem states that, underconditions for example, if there are no externalities, if an allocation and a kind of prices equal a competitive equilibrium, then the allocation is Pareto efficient.

Thewelfare theorem states that, underconditions, any Pareto efficient allocation can be decentralized as a competitive equilibrium.