The neoclassical economists have long used the concept of «market failure» as a stick with which to beat up on free enterprise system. Foremost amongst these so called failures» are «negative externalities.» These defined action that negatively affects third parties, other than via price. key example is pollution. dismal scientists never mention, however, fact government itself source negative ...

Taking the early U.S. automobile industry as an example, we evaluate two competing hypotheses on geographic concentration of industry: local externalities versus employee spinoffs. Our findings suggest that both forces contribute to industry agglomeration through their specific channels, and the spinoff effect can be viewed as a special form of local externalities. Calibrating our model to the ...

This paper extends the previous literature on optimal redistributive taxation in the presence of externalities to a multi-externality setting. While taxes on income and on 'clean' commodities are still una ected by the externalities, which con rms previous results, I nd that the existence of more than one externality-generating commodity has important implications for the optimal Pigouvian tax ...

This paper examines irreversible investment in a project with uncertain returns, when there is an advantage to being the first to invest, and externalities to investing when others also do so. Pre-emption decreases and may even eliminate the option values created by irreversibility and uncertainty. Externalities introduce inefficiencies in investment decisions. Pre-emption and externalities com...

Essential characteristics of corruption are (1) reciprocity relationships between bribers and public officials, (2) negative welfare effects, and (3) high penalties when discovered. We separate the influences of these factors in an experiment. In a two-player game reciprocation is economically inefficient through negative externalities. A control treatment without externalities is also conducte...

We combine growth theory with US Census data on individual schooling and wages to estimate the aggregate return to human capital and human capital externalities in cities. Our estimates imply that a one-year increase in average schooling in cities increases their aggregate labor productivity by 8 to 11 percent. We find no evidence for aggregate human capital externalities in cities however. Our...

There is now a substantial, if still somewhat inconclusive, literature which explains regional performance in terms of dynamic externalities or spill-over of new knowledge among firms in regional industrial clusters or urban centres. This has evolved into a debate on the relative importance of externalities of specialization versus those of diversity. Most of the empirical research on this topi...