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A Note on Externality Benefits and the Feasibilty of Pareto Optimality through Unilateral Subsidies

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  • D.A. Vardy

    (Queen's University)

Abstract

It has long been accepted that consumption (or production) activities which create external benefits to other parties will typically be operated at a sub-optimal level and that subsidies may be used to achieve optimality. The present analysis will deal with an external benefit where the externality is reciprocal between the consumption activities of two individuals and where the benefits are non-rivalrous. A subsidy system may be designed to alter the price of the consumption good so that consumption will be raised to an optimal level. This note will examine the importance of the subsidy transaction and will point out how the number of participants is relevant to the analysis. In particular, it will deal with the sigificance of 'third party subsidies'.

Suggested Citation

  • D.A. Vardy, 1971. "A Note on Externality Benefits and the Feasibilty of Pareto Optimality through Unilateral Subsidies," Working Paper 44, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:44
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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_44.pdf
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