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On the definition of externality as a missing market

Nathalie Berta ()
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Nathalie Berta: REGARDS - Recherches en Économie Gestion AgroRessources Durabilité Santé- EA 6292 - URCA - Université de Reims Champagne-Ardenne - MSH-URCA - Maison des Sciences Humaines de Champagne-Ardenne - URCA - Université de Reims Champagne-Ardenne

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Abstract: Within the general equilibrium framework, externalities are regarded as missing markets which invalidate the first theorem of welfare economics. As witnessed by some authors' positions in the 1970s, this definition does not highlight whether or not it is an exogenous and an unintended effect. These ambiguities raise the issue of the relation between the basic formalisation of an externality (a dependence of individual objective functions) and its economic meaning (a missing market). Finally, they also raise the more general issue of the dilution of externality in the larger notion of individual interaction.

Keywords: Externality; internalisation; missing market; Arrow; market failure (search for similar items in EconPapers)
Date: 2017
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Published in European Journal of the History of Economic Thought, Taylor & Francis (Routledge), 2017, 24 (2), pp.287-318. ⟨10.1080/09672567.2016.1169304⟩

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DOI: 10.1080/09672567.2016.1169304

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