Four Characterizations of Constrained Pareto Efficiency in Continuum Economies with Widespread Externalities

In continuum economies, widespread externalities are those over which each individual has negligible control. Nash–Walrasian equilibria with lump-sum transfers are defined, and their existence proved. They are then characterized by the property of “f constrained Pareto efficiency” for finite coalitions. More general “private good” Nash– Walrasian equilibria are characterized as private good constrained Pareto efficient. Introducing complete Pigou taxes or subsidies leads to equilibria that are characterized by constrained efficiency and f -constrained efficiency for given levels of the widespread externalities. But full efficiency requires resolving the public good problem of determining those aggregate externalities or, equivalently, of setting appropriate Pigou prices. Journal of Economic Literature classifications: D62, H41, D60.