Murty, Sushama. (2010) Externalities and fundamental nonconvexities: a reconciliation of approaches to general equilibrium externality modeling and implications for decentralization. Journal of Economic Theory, Vol.145 (No.1). pp. 331-353. ISSN 0022-0531

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Abstract

Starrett (1972) [33] and Boyd and Conley (1997) [7] approaches to externality modeling are unified by distinguishing between producible and nonproducible public commodities. Nonconvexities are associated with detrimental producible public commodities but not with nonproducible public commodities in Boyd and Conley (1997) [7]. Disposability properties (costly or costless) imply that producible public commodities are either by-products (e.g., pollution) or joint-products (e.g., national defense). Markets fail for both beneficial and detrimental by-products. Nonconvexities imply that price-based equilibria, e.g., Pigovian tax equilibrium, may not be Pareto-efficient. Foley's (1967, 1970) [17,18] "public competitive equilibrium" combines price and quantity signals with a unanimity criterion and restores the equivalence between equilibrium and efficiency. (C) 2009 Elsevier Inc. All rights reserved.

Item Type:	Journal Article
Subjects:	H Social Sciences > HC Economic History and Conditions
Divisions:	Faculty of Social Sciences > Economics
Journal or Publication Title:	Journal of Economic Theory
Publisher:	Academic Press
ISSN:	0022-0531
Date:	January 2010
Volume:	Vol.145
Number:	No.1
Number of Pages:	23
Page Range:	pp. 331-353
Identification Number:	10.1016/j.jet.2009.10.010
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
URI:	http://wrap.warwick.ac.uk/id/eprint/6342

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