"The problem is that in reality we never find an economy that is pristine except for the one problem in which we are interested. There are other pre-existing margins of distortion. The selected instrument,
for example an income tax or a commodity tax or subsidy, may itself start at a positive
level. Even if it starts at a zero level, it will generally affect many of the other distorted
margins. Therefore the by-product marginal welfare effects of the instrument will be
several of the usual trapezoids of the first order of smallness, comparable with its effect
on the margin that is the focus of interest. The net effect is not easy to predict. It will
generally remain non-zero, but in the abstract we cannot say whether it is positive or
negative. Therefore we cannot say whether the instrument in questionshould move in the
one direction or its opposite, for example whether we should subsidize or tax the
commodity. That requires a much more detailed calculation of all the first-order effects
and of their net balance"http://www.princeton.edu/~dixitak/home/StiglitzFest_Dixit.pdf
