Technical Change, Pecuniary Externality and the Market Failure
AbstractFirst, a small open economy is analyzed to show that even a complete and competitive market may fail to produce Pareto-efficient outcomes under conditions of changing technology. It is mainly because price- taking agents can make the prices they face by changing their technology or technique of production. It is then shown that this result holds equally true for the regional sub-economies of this economy. A legal provision of R&D tax/subsidy based on payroll changes is shown to be a second best policy that corrects the market failure with a small dead- weight loss. This policy does not require actual tax collection or subsidy payment and may be used by regional governments to correct technological market failure at regional levels. The provision improves the functioning of the market by eliminating the mismatch between the type of production sector and the type of technological/technical change they introduce.
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Bibliographic InfoPaper provided by EconWPA in its series GE, Growth, Math methods with number 9609001.
Length: 20 pages
Date of creation: 27 Sep 1996
Date of revision: 29 Sep 1996
Note: Type of Document - Word 7.0; prepared on IBM PC ; to print on HP LaserJet 4; pages: 20; figures: included
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Technical Change; Pecuniary Externality; Market Failure;
Find related papers by JEL classification:
- D6 - Microeconomics - - Welfare Economics
- O - Economic Development, Technological Change, and Growth
- P - Economic Systems
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Levine's Working Paper Archive
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