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On Characterizing Equilibria of Economies with Externalities and Taxes as Solutions to Optimization Problems

  • Kehoe, Timothy J
  • Levine, David K
  • Romer, Paul M

We characterize equilibria of general equilibrium models with externalities and taxes as solutions to optimization problems. This characterization is similar to Negishi's characterization of equilibria of economies without externalities or taxes as solutions to social planning problems. It is often useful for computing equilibria or deriving their properties. Frequently, however, finding the optimization problem that a particular equilibrium solves is difficult. This is especially true in economies with multiple equilibria. In a dynamic economy with externalities or taxes there may be a robust continuum of equilibria even if there is a representative consumer. This indeterminacy of equilibria is closely related to that in overlapping generations economies.

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Article provided by Springer in its journal Economic Theory.

Volume (Year): 2 (1992)
Issue (Month): 1 (January)
Pages: 43-68

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Handle: RePEc:spr:joecth:v:2:y:1992:i:1:p:43-68
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  1. Howitt, Peter & McAfee, R Preston, 1988. "Stability of Equilibria with Externalities," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 261-77, May.
  2. Laitner, John, 1984. "Transition time paths for overlapping-generations models," Journal of Economic Dynamics and Control, Elsevier, vol. 7(2), pages 111-129, May.
  3. Hansen, Terje & Koopmans, Tjalling C., 1972. "On the definition and computation of a capital stock invariant under optimization," Journal of Economic Theory, Elsevier, vol. 5(3), pages 487-523, December.
  4. Chipman, John S., 1974. "Homothetic preferences and aggregation," Journal of Economic Theory, Elsevier, vol. 8(1), pages 26-38, May.
  5. Burke, Jonathan L., 1987. "Inactive transfer policies and efficiency in general overlapping-generations economies," Journal of Mathematical Economics, Elsevier, vol. 16(3), pages 201-222, June.
  6. Ginsburgh, Victor A. & Van der Heyden, Ludo, 1988. "On extending the negishi approach to computing equilibria: The case of government price support policies," Journal of Economic Theory, Elsevier, vol. 44(1), pages 168-178, February.
  7. T. J. Kehoe & D. K. Levine, 1982. "Comparative Statics and Perfect Foresight in Infinite Horizon Economies," Working papers 312, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Timothy J. Kehoe & David K. Levine, 1990. "The Economics of Indeterminacy in Overlapping Generations Models," Levine's Working Paper Archive 2193, David K. Levine.
  9. Laitner, John, 1990. "Tax Changes and Phase Diagrams for an Overlapping Generations Model," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 193-220, February.
  10. Becker, Robert A., 1985. "Capital income taxation and perfect foresight," Journal of Public Economics, Elsevier, vol. 26(2), pages 147-167, March.
  11. Timothy J. Kehoe & David K. Levine & Andreu Mas-Colell & William Zame, 1989. "Determinacy of Equilibrium in Large Square Economies," Levine's Working Paper Archive 46, David K. Levine.
  12. Becker, Robert A. & Foias, Ciprian, 1986. "A minimax approach to the implicit programming problem," Economics Letters, Elsevier, vol. 20(2), pages 171-175.
  13. Brock, William A, 1973. "Some Results on the Uniqueness of Steady States in Multisector Models of Optimum Growth when Future Utilities are Discounted," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 535-59, October.
  14. Timothy J. Kehoe & David K. Levine & Paul M. Romer, 1989. "Determinacy of equilibria in dynamic models with finitely many consumers," Staff Report 118, Federal Reserve Bank of Minneapolis.
  15. Spear, Stephen E., 1991. "Growth, externalities, and sunspots," Journal of Economic Theory, Elsevier, vol. 54(1), pages 215-223, June.
  16. Timothy J. Kehoe, 1985. "The Comparative Statics Properties of Tax Models," Canadian Journal of Economics, Canadian Economics Association, vol. 18(2), pages 314-34, May.
  17. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  18. Balasko, Yves & Shell, Karl, 1980. "The overlapping-generations model, I: The case of pure exchange without money," Journal of Economic Theory, Elsevier, vol. 23(3), pages 281-306, December.
  19. Larry E. Jones & Rodolfo Manuelli, 1990. "A Convex Model of Equilibrium Growth," NBER Working Papers 3241, National Bureau of Economic Research, Inc.
  20. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  21. Chang, Fwu-Ranq, 1988. "The Inverse Optimal Problem: A Dynamic Programming Approach," Econometrica, Econometric Society, vol. 56(1), pages 147-72, January.
  22. Foster, Edward & Sonnenschein, Hugo, 1970. "Price Distortion and Economic Welfare," Econometrica, Econometric Society, vol. 38(2), pages 281-97, March.
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