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Public Policy Toward Pecuniary Externalities

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Author Info

  • Randall G. Holcombe

    (Florida State University)

  • Russell S. Sobel

    (West Virginia University)

Abstract

Pecuniary externalities create third-party effects through changes in relative prices or asset prices. Unlike technological externalities, they do not misallocate resources and are necessary for the market to work efficiently. However, the political process does not differentiate pecuniary from technological externalities and often tries to prevent pecuniary externalities, which creates resource misallocations. The article shows how pecuniary externalities function in markets, why the political process takes account of pecuniary externalities, and why public policy toward pecuniary externalities results in resource misallocations.

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Bibliographic Info

Article provided by in its journal Public Finance Review.

Volume (Year): 29 (2001)
Issue (Month): 4 (July)
Pages: 304-325

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Handle: RePEc:sae:pubfin:v:29:y:2001:i:4:p:304-325

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Cited by:
  1. Heather Roper & Chris Sayers & Andrew Smith, 2006. "Stranded Irrigation Assets," Staff Working Papers 0605, Productivity Commission, Government of Australia.
  2. Lusk, Jayson L., 2013. "Lunch with Pigou: Externalities and the “Hidden†Cost of Food," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 42(3), December.
  3. 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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