Internalizing the externalities

Internalizing the externalities of meaning

The Incentive Costs of Internalizing Externalities *

We present a dynamic agency model in which changes in the structure of a firm affect its value due to altered incentives. There may be disadvantages in merging two firms even when such a merger allows the internalization of externalities between the two firms. Merging, by making unprofitable certain decisions, increases the cost of inducing managers to exert effort. ∗Mailath and Postlewaite gra...

"It's All in the Mix!"- Internalizing externalities with R&D subsidies and environmental liability

January 28, 2014 Abstract Extending previous “tales of two market failures”, we consider a setting in which firms generate environmental externalities and may invest in environmentally friendly technological advancement generating R&D spillovers. We analyze the joint use of environmental liability law and R&D subsidies to internalize the double externality. Two alternative liability rules are c...

Optimal abatement and taxation for internalizing externalities: A dynamic game with feedback strategies

In this paper we consider a dynamic nonzero-sum game between the polluting firms and the authorities. Although the proposed game is not easily solvable for the feedback case, i.e., it is not the linear quadratic case of game and not a degenerated case, we calculate explicitly a stationary feedback equilibrium. In the proposed game the regulator has the ability to turn the optimal allocation of ...

Internalizing Externalities of Loss-Prevention through Insurance Monopoly: An Analysis of Interdependent Consumer Risks

When risks are interdependent, an agent ́s decision to self-protect affects the loss probabilites faced by others. Due to these externalities, economic agents invest too little in prevention relative to the socially efficient level by ignoring marginal external costs or benefits conferred on others. This paper analyzes an insurance market with externalities of loss prevention. It is shown in a m...