first best
noun1
Economics, Sciences A situation where all optimality conditions are satisfied.
- Related terms
- second best, third best
first best
adj1
Economics, Sciences Characterized by all optimality conditions being satisfiable.
- Here the government should avoid any policy that affects the workers' decision rules since it would harm efficiency, and the first-best way of pursuing distributional goals is through lump-sum transfers.2018, Lars Ljungqvist and Thomas J. Sargent, Recursive macroeconomic theory, 4th edition, MIT Press, page 200:
- Without a tariff, the competitive equilibrium outcome coincides with the first best allocation.2025 May 23, Iván Werning, Guido Lorenzoni, Veronica Guerrieri, “Tariffs as Cost-Push Shocks: Implications for Optimal Monetary Policy”, in NBER Working Paper Series, number 33772, page 5: