Allocation Mechanisms, Incentives, and Endemic Institutional Externalities

Peter Hammond

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Whether an economic agent's decision creates an externality often depends on the institutional context in which the decision was made. Indeed, in orthodox economics, a technological or exogenous externality occurs just in case one agent's economic welfare or production possibilities are directly affected by the market decisions of other agents. A pecuniary externality occurs just in case one consumer's economic welfare or producer's profit is affected indirectly by price changes caused by changes in other agents' decisions. Similarly, an institutional or endogenous externality may arise whenever allocations are determined by a mechanism that is not strategyproof for some agent. Then even a resource balance constraint creates an institutional externality except in special cases such as when no individual agent's action can affect market clearing prices - i.e., there are no pecuniary externalities.

Keywords: Externalities; pecuniary externalities; strategyproof mechanisms; institutional externalities (search for similar items in EconPapers)
JEL-codes: D63 D70 D90 Q54 Q56 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-ene, nep-mic and nep-res
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Working Paper: Allocation Mechanisms, Incentives, and Endemic Institutional Externalities (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1162

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