Optimal election of qualities in the presence of externalities
نویسندگان
چکیده
In this paper we obtain the quality and the level of production that a certain sector would have if completely unregulated. We use a vertical differentiation model with variable costs. The market outcome has been compared to the social planner solution, when this accounts for the external costs that the production activity provokes on resident households and for the possibility that an important share of the consumer surplus goes to non-residents. From this perspective, it is found that an optimal solution allows for the coexistence of the high and low qualities, and that the optimal solution does not necessarily imply that the high quality segment should be expanded. JEL classification: D62, L13, L15.
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