Pecuniary & Market Mediated Externalities: Towards a General Theory of the Welfare Economics & Economies with Imperfect Information & Incomplete Mrkts

Bruce C. Greenwald and Joseph Stiglitz

No 1304, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents a simple but quite general framework for analyzing the impact of informational externalities. By identifying the traditional pecuniary effect of these externalities which nets out,the paper greatly simplifies the problem of determining when tax interventions can be Pareto improving. In some cases it also leads to simple tests, based on readily observable indicators of the efficacy of a particular tax policy. The framework of the paper is used to analyze adverse selection, signalling, moral hazard, incomplete contingent claim markets and queue rationing equilibria.

Date: 1984-03
Note: PE
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Published as Greenwald, Bruce and Joseph E. Stiglitz. "Externalities in Economics with Incomplete Market Information," Quarterly Journal of Economics, Vol. CI, Issue 2, May 1986, pp. 229-264.

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