Richard George Lipsey, OC FRSC (born August 28, 1928) is a Canadian academic and economist. He is best known for his work on the economics of the second-best, a theory that demonstrated that piecemeal establishing of individual first best conditions would not necessarily raise welfare in a situation in which all first best conditions could not be satisfied, an article that he co-authored with Kelvin Lancaster. He is currently Professor Emeritus of Economics at Simon Fraser University.
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Richard Lipsey in the context of Theory of the Second Best
In welfare economics, the theory of the second best concerns the situation when one or more optimality conditions cannot be satisfied. The economists Richard Lipsey and Kelvin Lancaster showed in 1956 that if one optimality condition in an economic model cannot be satisfied, it is possible that the next-best solution involves changing other variables away from the values that would otherwise be optimal. Politically, the theory implies that if it is infeasible to remove a particular market distortion, introducing one or more additional market distortions in an interdependent market may partially counteract the first, and lead to a more efficient outcome.
Richard Lipsey in the context of Kelvin Lancaster
Kelvin John Lancaster (10 December 1924 – 23 July 1999) was an Australian mathematical economist and John Bates Clark professor of economics at Columbia University. He is best known for the development of the Theory of the Second Best with Richard Lipsey. Lancaster was also active in developing the calculus of qualitative economics, formulating the household production function, and applying the hedonic model to the estimation of housing prices.
In a 1966 paper, Lancaster developed what he called a "new theory of consumer demand", in which the then standard microeconomic demand theory was modified by stipulating that what consumers are seeking to acquire is not goods themselves (e.g. cars or train journeys) but the characteristics they contain (e.g. transport from A to B, display of fashion sense). As Palda (2013) explains