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Externalities, Decreasing Returns, and Common Ownership


  • Simpson, R. David


Placing production units under common ownership is often suggested as a solution to the problem of externalities. This will not always be true when there are decreasing returns to scale. An atomistic industry could be more efficient than a monopoly in some instances. Even when the "optimal" industry configuration would involve a finite number of producers, no two may have appropriate incentives to combine. An omniscient and benign regulator can always assure a more efficient outcome than would result from the combination of private producers. Whether real-world regulators should be called upon, however, is less clear.

Suggested Citation

  • Simpson, R. David, 2001. "Externalities, Decreasing Returns, and Common Ownership," Discussion Papers dp-01-41, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-01-41

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    References listed on IDEAS

    1. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
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    More about this item


    Externalities; Mergers; Returns to Scale; Incentives;

    JEL classification:

    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land

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