When one distortion cannot be removed, removing another can make things worse, so partial reform is not reliably an improvement.
Lipsey and Lancaster's 1956 result. It is why partial trade liberalisation or partial deregulation can reduce welfare, and why "at least it is a step in the right direction" is not a safe assumption.
In practice
- A country removes the tariff on components and keeps the tariff on finished goods, and its assembly industry closes.
- A hospital shortens waits in one department while the discharge lounge is untouched, and the wards block instead.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- The regularities money obeys