The Possibility of Oversupply with External Economies

Robin Boadway

No 63, Working Paper from Economics Department, Queen's University

Abstract: Until fairly recently, the Pigovian position that activities generating unpriced external economies would be undersupplied was universally accepted. It rested on the simple assertion that marginal social benefits exceeded marginal private benefits of the activity, and that, by equating the latter to the price,the marginal social benefit would exceed the price and the activity should be expanded. As a result in this paper, we have analysed the conditions under which oversupply could occur in the presence of external economies. In doing so, we have shown Baumol's analysis to be based upon a misleading definition of "externality". Furthermore,we have shown that the results arrived at by Vincent were faulty for several reasons. Also, the correct partial method is shown, but even it gives incorrect results. What is required is a simultaneous equation method to determine changes in a and b,such as is given in this paper.

Pages: 26 pages
Date: 1971-10
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://qed.econ.queensu.ca/working_papers/papers/qed_wp_63.pdf First version 1971 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:63

Access Statistics for this paper

More papers in Working Paper from Economics Department, Queen's University Contact information at EDIRC.
Bibliographic data for series maintained by Mark Babcock ().