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Externalities and Fundamental Nonconvexities : A Reconciliation of Approaches to General Equilibrium Externality Modelling and Implications for Decentralization

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  • Murty, Sushama

    (Department of Economics, University of Warwick)

Abstract

By distinguishing between producible and nonproducible public goods, we are able to propose a general equilibrium model with externalities that distinguishes between and encompasses both the Starrett [1972] and Boyd and Conley [1997] type external effects. We show that while nonconvexities remain fundamental whenever the Starrett type external effects are present, these are not caused by the type discussed in Boyd and Conley. Secondly, we find that the notion of a “public competitive equilibrium” for public goods found in Foley [1967, 1970] allows a decentralized mechanism, based on both price and quantity signals, for economies with externalities, which is able to restore the equivalence between equilibrium and efficiency even in the presence of nonconvexities. This is in contrast to equilibrium notions based purely on price signals such as the Pigouvian taxes

Suggested Citation

  • Murty, Sushama, 2006. "Externalities and Fundamental Nonconvexities : A Reconciliation of Approaches to General Equilibrium Externality Modelling and Implications for Decentralization," The Warwick Economics Research Paper Series (TWERPS) 756, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:756
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Kenneth Rødseth, 2014. "Efficiency measurement when producers control pollutants: a non-parametric approach," Journal of Productivity Analysis, Springer, vol. 42(2), pages 211-223, October.
    2. Murty, Sushama & Robert Russell, R. & Levkoff, Steven B., 2012. "On modeling pollution-generating technologies," Journal of Environmental Economics and Management, Elsevier, vol. 64(1), pages 117-135.
    3. Sushama Murty, 2012. "On the properties of an emission-generating technology and its parametric representation," Discussion Papers 1202, Exeter University, Department of Economics.
    4. Jeanneaux, Philippe & Latruffe, Laure, 2016. "Modelling pollution-generating technologies in performance benchmarking: Recent developments, limits and future prospects in the nonparametric frameworkAuthor-Name: Dakpo, K. Hervé," European Journal of Operational Research, Elsevier, vol. 250(2), pages 347-359.
    5. Sushama Murty & R. Robert Russell, "undated". "Modeling emission-generating technologies: Reconciliation of axiomatic and by-production approaches," Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers 16-01, Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India.
    6. K Hervé Dakpo, 2016. "On modeling pollution-generating technologies: a new formulation of the by-production approach," Working Papers SMART - LERECO 16-06, INRA UMR SMART-LERECO.
    7. Sushama Murty, 2012. "Microfoundations for the Environmental Kuznets Curve: Invoking By-Production, Normality and Inferiority of Emissions," Discussion Papers 1203, Exeter University, Department of Economics.
    8. repec:spr:empeco:v:54:y:2018:i:1:d:10.1007_s00181-016-1183-4 is not listed on IDEAS
    9. Sushama Murty, 2015. "On the properties of an emission-generating technology and its parametric representation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 60(2), pages 243-282, October.
    10. K Hervé Dakpo & Philippe Jeanneaux & Laure Latruffe, 2014. "Inclusion of undesirable outputs in production technology modeling:The case of greenhouse gas emissions in French meat sheep farming," Working Papers SMART - LERECO 14-08, INRA UMR SMART-LERECO.
    11. repec:kap:jproda:v:48:y:2017:i:2:d:10.1007_s11123-017-0513-7 is not listed on IDEAS
    12. Monique Florenzano, 2009. "Walras-Lindahl-Wicksell: What equilibrium concept for public goods provision," Working Papers halshs-00531434, HAL.

    More about this item

    Keywords

    externalities ; fundamental nonconvexities ; Clarke’s normal and tangent cones ; public goods;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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