Externalities, Decreasing Returns, and Common Ownership
AbstractPlacing 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.
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Bibliographic InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-01-41.
Date of creation: 01 Aug 2001
Date of revision:
Externalities; Mergers; Returns to Scale; Incentives;
Find related papers by JEL classification:
- L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
- Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
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- Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
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