Externalities and Fundamental Nonconvexities: A Reconciliation of Approaches to General Equilibrium Externality Modelling and Implications for Decentralization

Sushama Murty ()

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: By distinguishing between producible and nonproducible public goods, we are able to propose a general equilibrium model with externalities that distinguishes between and encompasses both the Starrett [1972] and Boyd and Conley [1997] type external effects. We show that while nonconvexities remain fundamental whenever the Starrett type external effects are present, these are not caused by the type discussed in Boyd and Conley. Secondly, we find that the notion of a “public competitive equilibrium” for public goods found in Foley [1967, 1970] allows a decentralized mechanism, based on both price and quantity signals, for economies with externalities, which is able to restore the equivalence between equilibrium and efficiency even in the presence of nonconvexities. This is in contrast to equilibrium notions based purely on price signals such as the Pigouvian taxes

Keywords: externalities; fundamental nonconvexities; Clarke’s normal and tangent cones; public goods (search for similar items in EconPapers)
JEL-codes: D50 D62 H41 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2006
New Economics Papers: this item is included in nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Externalities and fundamental nonconvexities: A reconciliation of approaches to general equilibrium externality modeling and implications for decentralization (2010)
Working Paper: Externalities and Fundamental Nonconvexities: A Reconciliation of Approaches to General Equilibrium Externality Modeling and Implications for Decentralization (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:756

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