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Externalities and fundamental nonconvexities : a reconciliation of approaches to general equilibrium externality modeling and implications for decentralization

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Murty, Sushama (2006) Externalities and fundamental nonconvexities : a reconciliation of approaches to general equilibrium externality modeling and implications for decentralization. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.756).

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Abstract

By distinguishing between producible and nonproducible public goods, we are able to propose a general equilibrium model with externalities that distinguishes between and encompasses both the Starrett [1972] and Boyd and Conley [1997] type external effects. We show that while nonconvexities remain fundamental whenever the Starrett
type external effects are present, these are not caused by the type discussed in Boyd and Conley. Secondly, we find that the notion of a “public competitive equilibrium”
for public goods found in Foley [1967, 1970] allows a decentralized mechanism, based on both price and quantity signals, for economies with externalities, which is able
to restore the equivalence between equilibrium and efficiency even in the presence of nonconvexities. This is in contrast to equilibrium notions based purely on price signals such as the Pigouvian taxes.

Item Type:

Working or Discussion Paper (Working Paper)

Subjects:

H Social Sciences > HB Economic Theory

Divisions:

Faculty of Social Sciences > Economics

Library of Congress Subject Headings (LCSH):

Externalities (Economics), Public goods

Series Name:

Warwick economic research papers

Publisher:

University of Warwick, Department of Economics

Place of Publication:

Coventry

Official Date:

August 2006

Dates:

Date	Event
August 2006	Published

Number:

No.756

Number of Pages:

Institution:

University of Warwick

Status:

Not Peer Reviewed

Access rights to Published version:

Open Access

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