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Existence and Efficiency of a Price-Taking Equilibrium in an Economy with Public Goods, Externalities and Property Rights: A Coasian Approach

Author

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  • John P. Conley

    (Department of Economics, Vanderbilt University)

  • Stefani C. Smith

Abstract

We consider a general equilibrium economy with public goods and externalities. Following Boyd and Conley (1997), we treat externality markets directly instead of indirectly through Arrovian commodities. Because such direct externality markets are not subject to the nonconvexities that Starrett (1972) shows are fundamental to Arrow's externality markets, this new approach admits the use of largely standard methods to prove welfare and existence theorems in an economy with externalities. We extend the Boyd and Conley model to allow firms to benefit from public goods and be damaged by externalities, and to allow consumers to produce externalities. We state a first welfare theorem and prove the existence of a competitive equilibrium. Taken together, this can be viewed as a type of general equilibrium Coase Theorem. Considered as a special case, these theorems also represent a significant generalization of existing results for pure public goods economies.

Suggested Citation

  • John P. Conley & Stefani C. Smith, 2004. "Existence and Efficiency of a Price-Taking Equilibrium in an Economy with Public Goods, Externalities and Property Rights: A Coasian Approach," Vanderbilt University Department of Economics Working Papers 0403, Vanderbilt University Department of Economics, revised Jan 2004.
    • Handle: RePEc:van:wpaper:0403
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    References listed on IDEAS

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    More about this item

    Keywords

    Externalities; Coase Theorem; Arrow commodities; pollution permits; property rights; Lindahl Equilibrium;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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