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Pricing Pollution and Other Negative Externalities


  • Richard A. Tybout


Equilibrium conditions are described for pollution or "externalities of production" treated as substitute products. The results are contrasted with those based on traditionally assumed fixed proportions between product and waste outputs. The "neutrality of bribery or compensation" argument is refuted. With linear homogeneous production functions, compensation leads to exhaustion of product; bribery does not. Only certain selected production functions and conditions can lead to positive aggregate profits in a bribe-paying industry. Requirements are described. The analysis is applied to a number of related issues: the blackmail problem, third party pricing, and public goods aspects.

Suggested Citation

  • Richard A. Tybout, 1972. "Pricing Pollution and Other Negative Externalities," Bell Journal of Economics, The RAND Corporation, vol. 3(1), pages 252-266, Spring.
  • Handle: RePEc:rje:bellje:v:3:y:1972:i:spring:p:252-266

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    Cited by:

    1. Biing-Shiunn Yang & Chao-Cheng Mai, 2013. "The impact of uncertain environmental regulatory policy on optimal plant location and anti-pollution technology selection," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 50(3), pages 753-769, June.
    2. Kuechle, Graciela & Rios, Diego, 2012. "The Coase theorem reconsidered: The role of alternative activities," International Review of Law and Economics, Elsevier, vol. 32(1), pages 129-134.
    3. Luca Colombo & Gianluca Femminis & Alessandro Pavan, 2014. "Information Acquisition and Welfare," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1438-1483.
    4. Geoffrey Black & D. Allen Dalton & Samia Islam & Aaron Batteen, 2014. "The Coasean Framework of the New York City Watershed Agreement," Cato Journal, Cato Journal, Cato Institute, vol. 34(1), pages 1-32, Winter.
    5. Hennlock, Magnus, 2006. "Coasean Bargaining Games with Stochastic Stock Externalities," Working Papers in Economics 229, University of Gothenburg, Department of Economics.
    6. Adam Gifford Jr. & Courtenay C. Stone, 1973. "Externalities, Liability And The Coase Theorem:A Mathematical Analysis," Economic Inquiry, Western Economic Association International, vol. 11(3), pages 260-269, September.
    7. Aalbers, R.F.T., 1999. "On the implications of thresholds for economic science and environmental policy," Other publications TiSEM 1b70587b-5494-4f87-bf3a-7, Tilburg University, School of Economics and Management.

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