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Stability of Equilibria with Externalities

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  • Peter Howitt
  • R. Preston McAfee

Abstract

It is shown that, in a class of models with multiple externalities (one positive and one negative), all stationary equilibria may be locally stable to perturbations, in the sense that there exist perfect foresight trajectories leading back to the equilibrium. Thus, scale diseconomies (arising, for example, out of a common resource pool) generally overturn the Liviatan-Samuelson result, that equilibria are either saddlepoints or sources.

Suggested Citation

  • Peter Howitt & R. Preston McAfee, 1988. "Stability of Equilibria with Externalities," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(2), pages 261-277.
    • Handle: RePEc:oup:qjecon:v:103:y:1988:i:2:p:261-277.
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    File URL: http://hdl.handle.net/10.2307/1885112
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