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Externalities, monopoly and the objective function of the firm

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  • David Kelsey

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  • Frank Milne

Abstract

This paper provides a theory of general equilibrium with externalities and/or monopoly. We assume that the firm's decisions are based on the preferences of shareholders and/or other stakeholders. Under these assumptions, a firmrm will produce fewer negative externalities than the comparable profit maximizing firm. In the absence of externalities, equilibrium with a monopoly will be Pareto efficient if the firm can price discriminate. The equilibrium can be implemented by a 2-part tariff.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 29 (2006)
Issue (Month): 3 (November)
Pages: 565-589

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Handle: RePEc:spr:joecth:v:29:y:2006:i:3:p:565-589

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Related research

Keywords: Externality; General equilibrium; Two-part tariff; Objective function of the firm; D520; D700; L200;

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References

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  1. Wayne Shafer & Hugo Sonnenschein, 1974. "Equilibrium in Abstract Economies Without Ordered Preferences," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 94, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Roemer, J.E., 1991. "Would Economic Democracy Decrease the Amount of Public Bads?," Papers, California Davis - Institute of Governmental Affairs 376, California Davis - Institute of Governmental Affairs.
  3. Oliver Hart & John Moore, 1996. "The Governance of Exchanges: Members' Co-operatives Versus Outside Ownership," STICERD - Theoretical Economics Paper Series, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE /1996/292, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  4. David Kelsey & Frank Milne, 2008. "Imperfect Competition and Corporate Governance," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(6), pages 1115-1141, December.
  5. Andrei Shleifer & Robert W. Vishny, 1995. "A Survey of Corporate Governance," Harvard Institute of Economic Research Working Papers 1741, Harvard - Institute of Economic Research.
  6. Joseph Farrell, 1985. "Owner-Consumers and Efficiency," Working papers 380, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Conley, John P. & Wooders, Myrna H., 2001. "Tiebout Economies with Differential Genetic Types and Endogenously Chosen Crowding Characteristics," Journal of Economic Theory, Elsevier, vol. 98(2), pages 261-294, June.
  8. Bohm Volker, 1994. "The Foundation of the Theory of Monopolistic Competition Revisited," Journal of Economic Theory, Elsevier, vol. 63(2), pages 208-218, August.
  9. Tirole, Jean, 1999. "Corporate Governance," CEPR Discussion Papers 2086, C.E.P.R. Discussion Papers.
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  11. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, Econometric Society, vol. 62(1), pages 157-80, January.
  12. Edward S. Prescott & Robert M. Townsend, 2000. "Firms as clubs in Walrasian markets with private information," Working Paper, Federal Reserve Bank of Richmond 00-08, Federal Reserve Bank of Richmond.
  13. Milne, F, 1974. "Corporate Investment and Finance Theory in Competitive Equilibrium," The Economic Record, The Economic Society of Australia, vol. 50(132), pages 511-33, December.
  14. Milne, Frank & Shefrin, H. M., 1987. "Information and securities: A note on pareto dominance and the second best," Journal of Economic Theory, Elsevier, vol. 43(2), pages 314-328, December.
  15. Sen, Amartya K, 1977. "Social Choice Theory: A Re-examination," Econometrica, Econometric Society, Econometric Society, vol. 45(1), pages 53-89, January.
  16. Erkan YalÁin & Thomas I. Renstr–m, 2003. "Endogenous Firm Objectives," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(1), pages 67-94, 01.
  17. Kelsey, David & Milne, Frank, 1996. "The existence of equilibrium in incomplete markets and the objective function of the firm," Journal of Mathematical Economics, Elsevier, vol. 25(2), pages 229-245.
  18. Renström, Thomas I & Yalcin, Erkan, 2002. "Endogenous Firm Objectives," CEPR Discussion Papers 3361, C.E.P.R. Discussion Papers.
  19. Bryan Ellickson & Birgit Grodal & Suzanne Scotchmer & William R Zame, 2003. "Clubs and the Market," Levine's Working Paper Archive 618897000000000754, David K. Levine.
  20. Franklin Allen & Douglas Gale, 1999. "Corporate Governance and Competition," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 99-28, Wharton School Center for Financial Institutions, University of Pennsylvania.
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  22. Hart, Oliver D., 1975. "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory, Elsevier, vol. 11(3), pages 418-443, December.
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Citations

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Cited by:
  1. Frank Milne & David Kelsey, 2006. "Takeovers and Cooperatives," Working Papers, Queen's University, Department of Economics 1113, Queen's University, Department of Economics.
  2. Bejan, Camelia & Bidian, Florin, 2009. "Ownership Structure and Efficiency in Large Economies," MPRA Paper 17677, University Library of Munich, Germany.
  3. Frank Milne & David Kelsey, 2006. "Imperfect Competition and Corporate Governance," Working Papers, Queen's University, Department of Economics 1079, Queen's University, Department of Economics.
  4. David Kelsey & Frank Milne, 2010. "Takeovers and cooperatives: governance and stability in non-corporate firms," Journal of Economics, Springer, vol. 99(3), pages 193-209, April.

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