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Externalities, Monopoly and the Objective Function of the Firm

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  • Frank Milne

    ()
    (Queen's University)

  • David Kelsey

    ()
    (Exeter University)

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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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1078.pdf
File Function: First version 2005
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1078.

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Length: 35 pages
Date of creation: May 2005
Date of revision:
Publication status: Forthcoming in Economic Theory
Handle: RePEc:qed:wpaper:1078

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Keywords: Externality; general equilibrium; 2-part tariff; objective function of the firm;

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References

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  1. Andrei Shleifer & Robert W. Vishny, 1996. "A Survey of Corporate Governance," NBER Working Papers 5554, National Bureau of Economic Research, Inc.
  2. Bryan Ellickson & Birgit Grodal & Suzanne Scotchmer & William R Zame, 2003. "Clubs and the Market," Levine's Working Paper Archive 618897000000000754, David K. Levine.
    • Bryan Ellickson & Birgit Grodal & Suzanne Scotchmer & William R. Zame, 1999. "Clubs and the Market," Econometrica, Econometric Society, vol. 67(5), pages 1185-1218, September.
  3. Hart, Oliver & Moore, John, 1996. "The Governance of Exchanges: Members' Cooperatives versus Outside Ownership," Oxford Review of Economic Policy, Oxford University Press, vol. 12(4), pages 53-69, Winter.
  4. 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.
  5. Roemer, J.E., 1991. "Would Economic Democracy Decrease the Amount of Public Bads?," Papers 376, California Davis - Institute of Governmental Affairs.
  6. Farrell, Joseph, 1985. "Owner-consumers and efficiency," Economics Letters, Elsevier, vol. 19(4), pages 303-306.
  7. Franklin Allen & Douglas Gale, 1999. "Corporate Governance and Competition," Center for Financial Institutions Working Papers 99-28, Wharton School Center for Financial Institutions, University of Pennsylvania.
  8. Tiroley, Jean, 2000. "Corporate Governance," CEI Working Paper Series 2000-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  9. Sen, Amartya K, 1977. "Social Choice Theory: A Re-examination," Econometrica, Econometric Society, vol. 45(1), pages 53-89, January.
  10. 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.
  11. 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.
  12. Bohm Volker, 1994. "The Foundation of the Theory of Monopolistic Competition Revisited," Journal of Economic Theory, Elsevier, vol. 63(2), pages 208-218, August.
  13. Milgrom, P. & Shannon, C., 1991. "Monotone Comparative Statics," Papers 11, Stanford - Institute for Thoretical Economics.
  14. 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.
  15. Aaron S. Edlin & Mario Epelbaum & Walter P. Heller, 1998. "Is Perfect Price Discrimination Really Efficient?: Welfare and Existence in General Equilibrium," Econometrica, Econometric Society, vol. 66(4), pages 897-922, July.
  16. Edward Simpson Prescott & Robert M. Townsend, 2006. "Firms as Clubs in Walrasian Markets with Private Information," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 644-671, August.
  17. Shafer, Wayne & Sonnenschein, Hugo, 1975. "Equilibrium in abstract economies without ordered preferences," Journal of Mathematical Economics, Elsevier, vol. 2(3), pages 345-348, December.
  18. 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.
  19. Cornes,Richard & Sandler,Todd, 1996. "The Theory of Externalities, Public Goods, and Club Goods," Cambridge Books, Cambridge University Press, number 9780521477185, April.
  20. Frank Milne & David Kelsey, 2006. "Imperfect Competition and Corporate Governance," Working Papers 1079, Queen's University, Department of Economics.
  21. Renström, Thomas I & Yalcin, Erkan, 2002. "Endogenous Firm Objectives," CEPR Discussion Papers 3361, C.E.P.R. Discussion Papers.
  22. 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.
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Citations

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Cited by:
  1. 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.
  2. Frank Milne & David Kelsey, 2006. "Imperfect Competition and Corporate Governance," Working Papers 1079, Queen's University, Department of Economics.
  3. Camelia Bejan & Florin Bidian, 2012. "Ownership structure and efficiency in large economies," Economic Theory, Springer, vol. 50(3), pages 571-602, August.
  4. Frank Milne & David Kelsey, 2006. "Takeovers and Cooperatives," Working Papers 1113, Queen's University, Department of Economics.

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