The development of second best modelling in the seventies has shaped modern theoretical
public economics. The paper discusses some key changes in the economists' conceptions.
The first two sections examine the efficiency- equity dilemma. The study of non convexities
has shown that counterintuitive "efficiency enhancing" income redistribution might occur.
The introduction of asymmetric information has shed doubts on virtues of lump-sum compensation.
The last sections focus on the intricate geometry of second best optimisation and the ambiguous
value of the signals provided by the price system outside a first best world.
Keywords: public economics, non convexities, second best, asymetric information, shadow prices
Guesnerie, Roger (1994):
"The Genealogy of Modern Theoretical Public Economics: From First Best to Second Best",
CES Working Paper Series 76,
Center for Economic Studies: Munich.