An Omission of the Theory of the Second Best from Undergraduate Public Economics Textbooks

What is it about?

The theory of the second best does not have much influence on the way we teach public economics at undergraduate level. Textbooks rarely mention the second-best considerations, and if they do, will discuss only one or two examples. In contrast, the first-best policies are emphasized everywhere. This paper discusses this issue, and offers a suggestion to justify this current practice in economics education.

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Why is it important?

Government interventions and market failure are important issues in economic policy. The theory of second best is an important perspective on how interventions should be done. Nonetheless, ignoring this idea in economics education at undergraduate level prevents policy makers from learning the great idea from this theory. This paper offers some guidelines for when the theory should or should not be emphasized more.