Externalities, internalization and fluctuations

Hervé Crès , Christian Ghiglino (1) , Mich Tvede

1 Economics department

In this paper we introduce consumption externalities as developed by Arrow in overlapping-generations economies. We show how the internalization of externalities-through exchanges at markets for externalities-may give rise to new phenomena such as altered stability properties and fluctuations, even though it restores optimality.

Domains: Humanities and Social Sciences; Economics and Finance

Hervé Crès, Christian Ghiglino, Mich Tvede. Externalities, internalization and fluctuations. International Economic Review, 1997, 38 (2), pp.465 - 477. ⟨hal-03417501⟩