Pecuniary & Market Mediated Externalities: Towards a General Theory of the Welfare Economics & Economies with Imperfect Information & Incomplete Mrkts
32 Pages Posted: 30 Jul 2000 Last revised: 27 Jul 2010
Date Written: March 1984
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.
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