Dynamic Externalities and Policy Coordination

Manjira Datta and Leonard Mirman

No 97/11, Working Papers from Arizona State University, Department of Economics

Abstract: We introduce the possibility of trade in dynamic models with externalities and evaluate the consequences on the capital accumulation process, the market-clearing prices and policy making. We consider mixed economies characterized by a blend of strategic and nonstrategic sectors. An equilibrium exists in the bilateral monopoly game because the strategic planner incorporates the future utility of the country and the presence of a nonstrategic sector in its decision making. Capital externality is one source of interdependence. Equilibrium price, a function of both outputs, is another. Policy coordination is advantageous only when preferences are dissimilar and an externality is present.

JEL-codes: C73 D90 E61 (search for similar items in EconPapers)
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Related works:
Journal Article: Dynamic Externalities and Policy Coordination (2000)
Working Paper: Dynamic Externalities and Policy Coordination
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