Externalities in the Edgeworth box

Name: Externalities in the Edgeworth box
Brand: Vita e Pensiero
Price: 6.00 EUR
Availability: OnlineOnly

digital

Article

Magazine

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI

Issue

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI - 2015 - 2

Title

Externalities in the Edgeworth box

Author

Gerd Weinrich

Publisher

Vita e Pensiero

Format

Article |

Pdf

Pages

Online from

11-2015

Issn

0035-676X (print) | 1827-7918 (digital)

€ 6.00

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Description

The effect of the presence of an externality in a general equilibrium scenario is illustrated in a standard Edgeworth box. Assuming utility functions parameterized by the incidence of the externality and taking into account the resource constraints when deriving agents’ indifference curves for consumption distributions renders possible to depict contract curves with and without the externality in the same box. The introduction of a market for the right to generate the externality extends the Second Welfare Theorem to hold in the presence of an externality, too. In doing this a novel and strikingly simple graphical procedure is developed to obtain the complete picture.