{{Short description|Decision-maker who attempts to maximize social welfare}} {{More citations needed|date=December 2009}} In welfare economics, a '''social planner''' is a hypothetical decision-maker who attempts to maximize some notion of social welfare. The planner is a fictional entity who chooses allocations for every agent in the economy—for example, levels of consumption and leisure—that maximize a social welfare function subject to certain constraints (e.g., a physical resource constraint, or incentive compatibility constraints). This so-called '''planner's problem''' is a mathematical constrained optimization problem. Solving the planner's problem for all 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 efficient allocation is a solution 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 whether a decentralized market could implement a Pareto efficient allocation, or conversely, whether the outcomes from a decentralized market are Pareto efficient. The fundamental theorems of welfare economics answer these questions, under certain key assumptions.<ref>{{harvnb|Jehle|Reny|2011}}</ref>
The first welfare theorem states that, under certain conditions (for example, if there are no externalities), if an allocation and a set of prices constitute a competitive equilibrium, then the allocation is Pareto efficient.
The second welfare theorem states that, under certain conditions, any Pareto efficient allocation can be decentralized as a competitive equilibrium.
==See also== *Pareto efficiency *Social welfare function *Welfare economics *Constrained optimization *Production-possibility frontier
== References == {{Reflist}} *{{citation|last1=Jehle|first1=Geoffrey A.|last2=Reny|first2=Philip J.|edition=3rd|title=Advanced Microeconomic Theory|year=2011|publisher=Pearson|isbn=978-0-273-73191-7|chapter=Chapter 5: General Equilibrium}} * {{citation|author-link=Andreu Mas-Colell|last1=Mas-Colell|first1=Andreu|first2=Michael D.|last2=Whinston|first3=Jerry R.|last3=Green|year=1995|title=Microeconomic Theory|chapter=Chapter 16: Equilibrium and its Basic Welfare Properties|publisher=Oxford University Press|isbn=0-19-510268-1|url=https://archive.org/details/isbn_9780198089537}}
{{DEFAULTSORT:Social Planner}} Category:Welfare economics