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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 & Society for the Advancement of Economic Theory (SAET) 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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Web page: http://saet.uiowa.edu/

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  1. Herbert E. Scarf, 1967. "On the Computation of Equilibrium Prices," Cowles Foundation Discussion Papers 232, Cowles Foundation for Research in Economics, Yale University.
  2. 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.
  3. Chipman, John S., 1974. "Homothetic preferences and aggregation," Journal of Economic Theory, Elsevier, vol. 8(1), pages 26-38, May.
  4. Spear, Stephen E., 1991. "Growth, externalities, and sunspots," Journal of Economic Theory, Elsevier, vol. 54(1), pages 215-223, June.
  5. GINSBURGH, Victor A. & VAN DER HEYDEN, Ludo, . "On extending the Negishi approach to computing equilibria: the case of government price support policies," CORE Discussion Papers RP 787, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. 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.
  7. Foster, Edward & Sonnenschein, Hugo, 1970. "Price Distortion and Economic Welfare," Econometrica, Econometric Society, vol. 38(2), pages 281-97, March.
  8. Peter Howitt & R. Preston McAfee, 1988. "Stability of Equilibria with Externalities," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 261-277.
  9. 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.
  10. 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.
  11. 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.
  12. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  13. Kehoe, Timothy J. & Levine, David K., 1990. "The economics of indeterminacy in overlapping generations models," Journal of Public Economics, Elsevier, vol. 42(2), pages 219-243, July.
  14. Becker, Robert A. & Foias, Ciprian, 1986. "A minimax approach to the implicit programming problem," Economics Letters, Elsevier, vol. 20(2), pages 171-175.
  15. 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.
  16. 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.
  17. 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.
  18. Becker, Robert A., 1985. "Capital income taxation and perfect foresight," Journal of Public Economics, Elsevier, vol. 26(2), pages 147-167, March.
  19. Timothy J. Kehoe & David K. Levine, 1982. "Comparitive Statics and Perfect Foresight in Infinite Horizon Economies," UCLA Economics Working Papers 259, UCLA Department of Economics.
  20. Laitner, John, 1984. "Transition time paths for overlapping-generations models," Journal of Economic Dynamics and Control, Elsevier, vol. 7(2), pages 111-129, May.
  21. Chang, Fwu-Ranq, 1988. "The Inverse Optimal Problem: A Dynamic Programming Approach," Econometrica, Econometric Society, vol. 56(1), pages 147-72, January.
  22. 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.
  23. Larry E. Jones & Rodolfo Manuelli, 1990. "A Convex Model of Equilibrium Growth," NBER Working Papers 3241, National Bureau of Economic Research, Inc.
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