Consumption Externalities and Economic Welfare

Randall Holcombe and Russell Sobel

Eastern Economic Journal, 2000, vol. 26, issue 2, 157-170

Abstract: The distinction between technological and pecuniary externalities, usually made in production, can also be applied to consumption. Technological externalities create resource misallocations while pecuniary externalities do not. Taking a household production approach to consumption, this paper shows that many cases in which there are external effects on people's utility functions are pecuniary externalities, and public policy should ignore them. The economic literature has been inconsistent in its treatment of pecuniary consumption externalities, and this paper provides a framework for analysis in cases where the actions of some people affect the utility of others.

Keywords: Consumption; Economic Welfare; Externalities; Welfare (search for similar items in EconPapers)
JEL-codes: D10 D62 (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eej:eeconj:v:26:y:2000:i:2:p:157-170

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