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Externalities, Decreasing Returns, and Common Ownership

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  • Simpson, R. David

Abstract

Placing production units under common ownership is often suggested as a solution to the problem of externalities. This will not always be true when there are decreasing returns to scale. An atomistic industry could be more efficient than a monopoly in some instances. Even when the "optimal" industry configuration would involve a finite number of producers, no two may have appropriate incentives to combine. An omniscient and benign regulator can always assure a more efficient outcome than would result from the combination of private producers. Whether real-world regulators should be called upon, however, is less clear.

Suggested Citation

  • Simpson, R. David, 2001. "Externalities, Decreasing Returns, and Common Ownership," Discussion Papers 10457, Resources for the Future.
    • Handle: RePEc:ags:rffdps:10457
    DOI: 10.22004/ag.econ.10457
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    References listed on IDEAS

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    3. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    4. Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-177, March.
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