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On characterizing equilibria of economies with externalities and taxes as solutions to optimization problems

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  • Timothy J. Kehoe
  • David K. Levine
  • Paul M. Romer

Abstract

We characterize equilibria of general equilibrium models with externalities and taxes as solutions to optimization problems. This characterization is similar to Negishi’s characterization of equilibria of economies without externalities or taxes as solutions to social planning problems. It is often useful for computing equilibria or deriving their properties. Frequently, however, finding the optimization problem that a particular equilibrium solves is difficult. This is especially true in economies with multiple equilibria. In a dynamic economy with externalities or taxes there may be a robust continuum of equilibria even if there is a representative consumer. This indeterminacy of equilibria is closely related to that in overlapping generations economies.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 436.

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Date of creation: 1990
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Handle: RePEc:fip:fedmwp:436

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  1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  2. Timothy J. Kehoe, 1985. "The Comparative Statics Properties of Tax Models," Canadian Journal of Economics, Canadian Economics Association, vol. 18(2), pages 314-34, May.
  3. Terje Hansen & Tjalling C. Koopmans, 1972. "On the Definition and Computation of a Capital Stock Invariant Under Optimization," Cowles Foundation Discussion Papers 313R, Cowles Foundation for Research in Economics, Yale University.
  4. Brock, William A, 1973. "Some Results on the Uniqueness of Steady States in Multisector Models of Optimum Growth when Future Utilities are Discounted," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 535-59, October.
  5. Kehoe, Timothy J. & Levine, David K. & Romer, Paul M., 1990. "Determinacy of equilibria in dynamic models with finitely many consumers," Journal of Economic Theory, Elsevier, vol. 50(1), pages 1-21, February.
  6. Becker, Robert A. & Foias, Ciprian, 1986. "A minimax approach to the implicit programming problem," Economics Letters, Elsevier, vol. 20(2), pages 171-175.
  7. Becker, Robert A., 1985. "Capital income taxation and perfect foresight," Journal of Public Economics, Elsevier, vol. 26(2), pages 147-167, March.
  8. Larry E. Jones & Rodolfo Manuelli, 1990. "A Convex Model of Equilibrium Growth," NBER Working Papers 3241, National Bureau of Economic Research, Inc.
  9. Chang, Fwu-Ranq, 1988. "The Inverse Optimal Problem: A Dynamic Programming Approach," Econometrica, Econometric Society, vol. 56(1), pages 147-72, January.
  10. Timothy J. Kehoe & David K. Levine, 1990. "The Economics of Indeterminacy in Overlapping Generations Models," Levine's Working Paper Archive 2193, David K. Levine.
  11. T. J. Kehoe & D. K. Levine, 1982. "Comparative Statics and Perfect Foresight in Infinite Horizon Economies," Working papers 312, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Howitt, Peter & McAfee, R Preston, 1988. "Stability of Equilibria with Externalities," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 261-77, May.
  13. Laitner, John, 1990. "Tax Changes and Phase Diagrams for an Overlapping Generations Model," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 193-220, February.
  14. Foster, Edward & Sonnenschein, Hugo, 1970. "Price Distortion and Economic Welfare," Econometrica, Econometric Society, vol. 38(2), pages 281-97, March.
  15. Chipman, John S., 1974. "Homothetic preferences and aggregation," Journal of Economic Theory, Elsevier, vol. 8(1), pages 26-38, May.
  16. Balasko, Yves & Shell, Karl, 1980. "The overlapping-generations model, I: The case of pure exchange without money," Journal of Economic Theory, Elsevier, vol. 23(3), pages 281-306, December.
  17. Laitner, John, 1984. "Transition time paths for overlapping-generations models," Journal of Economic Dynamics and Control, Elsevier, vol. 7(2), pages 111-129, May.
  18. Timothy J. Kehoe & David K. Levine & Andreu Mas-Colell & William Zame, 1989. "Determinacy of Equilibrium in Large Square Economies," Levine's Working Paper Archive 46, David K. Levine.
  19. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  20. Spear, Stephen E., 1991. "Growth, externalities, and sunspots," Journal of Economic Theory, Elsevier, vol. 54(1), pages 215-223, June.
  21. Ginsburgh, Victor A. & Van der Heyden, Ludo, 1988. "On extending the negishi approach to computing equilibria: The case of government price support policies," Journal of Economic Theory, Elsevier, vol. 44(1), pages 168-178, February.
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