Technical Change, Pecuniary Externality and the Market Failure
First, a small open economy is analyzed to show that even a complete and competitive market may fail to produce Pareto-efficient outcomes under conditions of changing technology. It is mainly because price- taking agents can make the prices they face by changing their technology or technique of production. It is then shown that this result holds equally true for the regional sub-economies of this economy. A legal provision of R&D tax/subsidy based on payroll changes is shown to be a second best policy that corrects the market failure with a small dead- weight loss. This policy does not require actual tax collection or subsidy payment and may be used by regional governments to correct technological market failure at regional levels. The provision improves the functioning of the market by eliminating the mismatch between the type of production sector and the type of technological/technical change they introduce.
|Date of creation:||27 Sep 1996|
|Date of revision:||29 Sep 1996|
|Note:||Type of Document - Word 7.0; prepared on IBM PC ; to print on HP LaserJet 4; pages: 20; figures: included|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- WILDASIN, David E., "undated".
"Indirect distributional effects in benefit-cost analysis of small projects,"
CORE Discussion Papers RP
807, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Wildasin, David E, 1988. "Indirect Distributional Effects in Benefit-Cost Analysis of Small Projects," Economic Journal, Royal Economic Society, vol. 98(392), pages 801-807, September.
- Tibor Scitovsky, 1954. "Two Concepts of External Economies," Journal of Political Economy, University of Chicago Press, vol. 62, pages 143-143.
- Lewis Makowski & Joseph Ostroy, 2010.
"Appropriation and Efficiency: A Revision of the First Theorem of Welfare Economics,"
Levine's Working Paper Archive
1386, David K. Levine.
- Makowski, Louis & Ostroy, Joseph M, 1995. "Appropriation and Efficiency: A Revision of the First Theorem of Welfare Economics," American Economic Review, American Economic Association, vol. 85(4), pages 808-827, September.
- Scotchmer, Suzanne, 1986. "Local public goods in an equilibrium : How pecuniarv externalities matter," Regional Science and Urban Economics, Elsevier, vol. 16(4), pages 463-481, November.
- Lee Hsien Loong & Richard Zeckhauser, 1982. "Pecuniary Externalities Do Matter When Contingent Claims Markets are Incomplete," The Quarterly Journal of Economics, Oxford University Press, vol. 97(1), pages 171-179.
- Foster, Edward, 1983. "Rents and Pecuniary Externalities in Cost-Benefit Analysis: Reply," American Economic Review, American Economic Association, vol. 73(5), pages 1171-1172, December.
- Ng, Yew-Kwang, 1983. "Rents and Pecuniary Externalities in Cost-Benefit Analysis: Comment," American Economic Review, American Economic Association, vol. 73(5), pages 1163-1170, December.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpge:9609001. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.