Hammond, Peter J., 1945- (2007) History : sunk cost or widespread externality? : second Arcelli lecture at the University of Piacenza, April 2007. [Report]

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Abstract

In an intertemporal Arrow-Debreu economy with a continuum of agents, suppose that the auctioneer sets prices while the government institutes optimal lump-sum transfers period by period. An earlier paper showed how subgame imperfections arise because agents understand how their current decisions such as those determining investment will influence future lump-sum transfers. This observation undermines the second efficiency theorem of welfare economics and makes "history" a widespread externality. A two-period model is used to investigate the constrained efficiency properties of different kinds of equilibrium. Possibilities for remedial policy are also discussed.

Item Type:	Report
Alternative Title:	Arcelli lecture (2007)
Subjects:	H Social Sciences > HB Economic Theory
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Efficiency wage theory, Welfare economics, Equilibrium (Economics)
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	[Coventry]
Date:	July 2007
Number:	No.808
Number of Pages:	25
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Available As:	Hammond, P.J. (2007) History : sunk cost or widespread externality? Rivista Internazionale di Scienze Sociali, No.2, pp.161–185.
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URI:	http://wrap.warwick.ac.uk/id/eprint/8

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