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Sufficient conditions for a "simple" decentralization with consumption externalities

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Abstract

We consider a pure exchange economy with consumption externalities in preferences. Using the notion of competitive equilibrium à la Nash, we point out that a simple condition for restoring the Second Welfare Theorem is that the set of Pareto optima is included in the set of internal Pareto optima. We provide the Social Redistribution assumption to ensure such inclusion. This assumption is weaker than other relevant assumptions that have been studied in the literature. We also introduce new conditions in a differential setting, called (Strong) Directional Social Redistribution. Our assumptions entail interesting results on the decentralized implementation of Pareto optima, that relate the competitive supporting price and the social shadow price. Finally, we show that, for Bergson-Samuelson utility functions, Strong Directional Social Redistribution is ensured by a specific property of the Jacobian matrix, which has a natural interpretation in terms of externalities

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  • Elena L. Del Mercato & Van Quy Nguyen, 2021. "Sufficient conditions for a "simple" decentralization with consumption externalities," Documents de travail du Centre d'Economie de la Sorbonne 21029r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Jun 2022.
    • Handle: RePEc:mse:cesdoc:21029r
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    More about this item

    Keywords

    Consumption externalities; competitive equilibrium à la Nash; decentralization; social redistribution;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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