Externalities, Monopoly and the Objective Function of the Firm
University of Birmingham Economics Working Paper No. 02-01
35 Pages Posted: 15 Apr 2005
Date Written: July 21, 2004
This paper provides a theory of general equilibrium with externalities and/or monopoly. We assume that the firm's decisions are based on the preferences of shareholders and/or other stakeholders. Under these assumptions a firm will produce fewer negative externalities than the comparable profit maximising firm. In the absence of externalities, equilibrium with a monopoly will be Pareto efficient if the firm can price discriminate. The equilibrium can be implemented by a 2-part tariff.
Keywords: Externality, general equilibrium, 2-part tariff, objective function of the firm
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