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Consumption Externalities and Economic Welfare

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  • Randall G. Holcombe

    ()
    (Department of Economics, Florida State University)

  • Russell S. Sobel

    (West Virginia University)

Abstract

The distinction between technological and pecuniary externalities, usually made in production, can also be applied to consumption. Technological externalities create resource misallocations while pecuniary externalities do not. Taking a household production approach to consumption, this paper shows that many cases in which there are external effects on people's utility functions are pecuniary externalities, and public policy should ignore them. The economic literature has been inconsistent in its treatment of pecuniary consumption externalities, and this paper provides a framework for analysis in cases where the actions of some people affect the utility of others.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume26/V26N2P157_170.pdf
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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 26 (2000)
Issue (Month): 2 (Spring)
Pages: 157-170

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Handle: RePEc:eej:eeconj:v:26:y:2000:i:2:p:157-170

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Related research

Keywords: Consumption; Economic Welfare; Externalities; Welfare;

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Cited by:
  1. Stefan Mann, 2006. "Merit goods in a utilitarian framework," Review of Political Economy, Taylor & Francis Journals, vol. 18(4), pages 509-520.
  2. Mann, Stefan & Wustemann, Henry, 2008. "Multifunctionality and a new focus on externalities," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(1), pages 293-307, February.

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