Theory of Second Best and Pareto Optimization, Public Economics

Theory of Second Best and Pareto Optimization, Public Economics

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“In the presence of institutional constraints, the Theory of Second Best tells us to perform the welfare maximization problem to solve the Pareto Optimal conditions and then apply the institutional constraints to the optimal solution.”
Is this statement true or false?
If you answer true then justify your answer by constructing a single diagram of the first-best, second-best, and piecemeal solutions and describing how the statement applies to the Theory of Second Best.
If you answer false then justify your answer by constructing a single diagram of the first-best, second-best, and piecemeal solutions and describing how the statement does not apply to the Theory of Second Best.

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