History: Sunk Cost, or Widespread Externality?

Peter Hammond

No 269758, Economic Research Papers from University of Warwick - Department of Economics

Abstract: In an intertemporal Arrow–Debreu economy with a continuum of agents, suppose that the auctioneer sets prices while the government institutes optimal lump-sum transfers period by period. An earlier paper showed how subgame imperfections arise because agents understand how their current decisions such as those determining investment will influence future lump-sum transfers. This observation undermines the second efficiency theorem of welfare economics and makes “history” a widespread externality. A two-period model is used to investigate the constrained efficiency properties of different kinds of equilibrium. Possibilities for remedial policy are also discussed.

Keywords: Agricultural and Food Policy; Research Methods/ Statistical Methods (search for similar items in EconPapers)
Pages: 24
Date: 2007
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Journal Article: History: Sunk Cost, or Widespread Externality? (2007)
Working Paper: History: Sunk Cost, or Widespread Externality? (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwarer:269758

DOI: 10.22004/ag.econ.269758

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