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Revisiting Externalities

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  • Hurwicz, Leonid

Abstract

For economies with one-sided externalities between firms, four types of results are presented and discussed: (i) the impossibility of decentralized finite-dimensional mechanisms guaranteeing Pareto optimality; (ii) the possibilities for Pigou taxes in situations where Arrovian markets cannot function; (iii) that mergers may be able to internalize "weak" externalities but not "strong" ones; and (iv) that "parallelism" of indifference curves (quasi-linear utilities, absence of income effects) is necessary, and not merely sufficient, for the validity of the Coase Invariance Theorem (asserting that alternative institutional arrangements do not change the level of externality). The paper builds on the seminal contributions of Starrett, Calsamiglia, Baumol, Bradford, Oates, Boyd, and Conley. Copyright 1999 by Blackwell Publishing Inc.

Suggested Citation

  • Hurwicz, Leonid, 1999. " Revisiting Externalities," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 1(2), pages 225-245.
  • Handle: RePEc:bla:jpbect:v:1:y:1999:i:2:p:225-45
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    Cited by:

    1. Lisandro Abrego & John Whalley, 2003. "Firm Property Rights, Bargaining, and Internalization," UWO Department of Economics Working Papers 20031, University of Western Ontario, Department of Economics, revised Nov 2002.
    2. Tian, Guoqiang, 2004. "On the Informational Requirements of Decentralized Pareto-Satisfactory Mechanisms in Economies with Increasing Returns," MPRA Paper 41226, University Library of Munich, Germany, revised Oct 2006.
    3. Murty, Sushama, 2010. "Externalities and fundamental nonconvexities: A reconciliation of approaches to general equilibrium externality modeling and implications for decentralization," Journal of Economic Theory, Elsevier, vol. 145(1), pages 331-353, January.
    4. Tian, Guoqiang, 2001. "The Unique Informational Effciency of the Lindahl Allocation Process in Economies with Public Goods," MPRA Paper 41229, University Library of Munich, Germany, revised Oct 2005.
    5. repec:spr:grdene:v:18:y:2009:i:4:d:10.1007_s10726-008-9146-6 is not listed on IDEAS
    6. Brito, Dagobert L. & Hamilton, Jonathan H. & Intriligator, Michael D. & Sheshinski, Eytan & Slutsky, Steven M., 2006. "Private information, Coasian bargaining, and the second welfare theorem," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 871-895, May.
    7. Guoqiang Tian, 2006. "The unique informational efficiency of the competitive mechanism in economies with production," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 26(1), pages 155-182, January.
    8. Myrna Wooders, 2010. "Cores of many-player games; nonemptiness and equal treatment," Review of Economic Design, Springer;Society for Economic Design, vol. 14(1), pages 131-162, March.

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