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Externalities, Monopoly and the Objective Function of the Firm

  • David Kelsey

    (Department of Economics, University of Exeter and University of Birmingham)

  • Frank Milne

    (Department of Economics, Queens University, Canada.)

This paper provides a theory of general equilibrium with externalities and/or monopoly. We assume that the firm's decisions are based on the preferences of shareholders and/or other stakeholders. Under these assumptions, a firm will produce fewer negative externalities than the comparable profit maximizing firm. In the absence of externalities, equilibrium with a monopoly will be Pareto efficient if the firm can price discriminate. The equilibrium can be implemented by a 2-part tariff.

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File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP0604.pdf
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Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 0604.

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Date of creation: Jun 2006
Date of revision:
Handle: RePEc:exe:wpaper:0604
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Web page: http://business-school.exeter.ac.uk/about/departments/economics/

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  1. Milne, F, 1974. "Corporate Investment and Finance Theory in Competitive Equilibrium," The Economic Record, The Economic Society of Australia, vol. 50(132), pages 511-33, December.
  2. Milne, Frank & Shefrin, H. M., 1987. "Information and securities: A note on pareto dominance and the second best," Journal of Economic Theory, Elsevier, vol. 43(2), pages 314-328, December.
  3. Andrei Shleifer & Robert W. Vishny, 1996. "A Survey of Corporate Governance," NBER Working Papers 5554, National Bureau of Economic Research, Inc.
  4. David Kelsey & Frank Milne, 2008. "Imperfect Competition and Corporate Governance," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(6), pages 1115-1141, December.
  5. Shafer, Wayne & Sonnenschein, Hugo, 1975. "Equilibrium in abstract economies without ordered preferences," Journal of Mathematical Economics, Elsevier, vol. 2(3), pages 345-348, December.
  6. Milgrom, P. & Shannon, C., 1991. "Monotone Comparative Statics," Papers 11, Stanford - Institute for Thoretical Economics.
  7. Farrell, Joseph, 1985. "Owner-consumers and efficiency," Economics Letters, Elsevier, vol. 19(4), pages 303-306.
  8. Sen, Amartya K, 1977. "Social Choice Theory: A Re-examination," Econometrica, Econometric Society, vol. 45(1), pages 53-89, January.
  9. Kelsey, David & Milne, Frank, 1996. "The existence of equilibrium in incomplete markets and the objective function of the firm," Journal of Mathematical Economics, Elsevier, vol. 25(2), pages 229-245.
  10. repec:cup:cbooks:9780521477185 is not listed on IDEAS
  11. Hart, Oliver D., 1975. "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory, Elsevier, vol. 11(3), pages 418-443, December.
  12. Hart, Oliver & Moore, John, 1996. "The Governance of Exchanges: Members' Cooperatives versus Outside Ownership," Oxford Review of Economic Policy, Oxford University Press, vol. 12(4), pages 53-69, Winter.
  13. Bryan Ellickson & Birgit Grodal & Suzanne Scotchmer & William R. Zame, 1999. "Clubs and the Market," Econometrica, Econometric Society, vol. 67(5), pages 1185-1218, September.
  14. Bohm Volker, 1994. "The Foundation of the Theory of Monopolistic Competition Revisited," Journal of Economic Theory, Elsevier, vol. 63(2), pages 208-218, August.
  15. Erkan YalÁin & Thomas I. Renstr–m, 2003. "Endogenous Firm Objectives," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(1), pages 67-94, 01.
  16. Roemer, J.E., 1991. "Would Economic Democracy Decrease the Amount of Public Bads?," Papers 376, California Davis - Institute of Governmental Affairs.
  17. Conley, John P. & Wooders, Myrna H., 2001. "Tiebout Economies with Differential Genetic Types and Endogenously Chosen Crowding Characteristics," Journal of Economic Theory, Elsevier, vol. 98(2), pages 261-294, June.
  18. Aaron S. Edlin & Mario Epelbaum & Walter P. Heller, 1998. "Is Perfect Price Discrimination Really Efficient?: Welfare and Existence in General Equilibrium," Econometrica, Econometric Society, vol. 66(4), pages 897-922, July.
  19. Franklin Allen & Douglas Gale, 1999. "Corporate Governance and Competition," Center for Financial Institutions Working Papers 99-28, Wharton School Center for Financial Institutions, University of Pennsylvania.
  20. Tiroley, Jean, 2000. "Corporate Governance," CEI Working Paper Series 2000-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  21. Renström, Thomas I & Yalcin, Erkan, 2002. "Endogenous Firm Objectives," CEPR Discussion Papers 3361, C.E.P.R. Discussion Papers.
  22. Edward S. Prescott & Robert M. Townsend, 2000. "Firms as clubs in Walrasian markets with private information," Working Paper 00-08, Federal Reserve Bank of Richmond.
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