A cap on greenhouse gas emissions makes total emissions a fixed commonproperty resource. Population increases under a cap are therefore self-limiting: a population increase raises labor and reduces emissions per unit of labor, which lowers incomes and fertility. Because a marginal birth under a cap lowers all incomes, a cap induces a negative population externality. The externality is substanti...

We present a methodology for measuring the risks posed by drinking drivers that relies solely on readily available data on fatal crashes. The key to our identification strategy is a hidden richness inherent in twocar crashes. Drivers with alcohol in their blood are seven times more likely to cause a fatal crash; legally drunk drivers pose a risk 13 times greater than sober drivers. The external...

In a model of majority voting with common values and costly but voluntary participation, we show that in the vicinity of equilibrium, it is always Pareto-improving for more agents, on the average, to vote. This demonstrates that the negative voting externality identified by Borgers(2001) in the context of private values is always dominated by a positive informational externality. In addition, w...

The paper examines welfare improving and revenue neutral directions marginal policy reforms for an economy with nonidentical individuals and an externality that has a feedback effect on the consumption of taxed goods. It considers three types of policy instruments: the indirect taxes, the uniform poll transfer and public abatement. This extends the framework set up by Ahmad and Stern (1984), Bo...

This paper shows that in a small open economy with downward nominal wage rigidity pegging the nominal exchange rate creates a pecuniary externality. The externality causes unemployment, overborrowing, and depressed consumption. Ramsey optimal capital controls are shown to be prudential in the sense that they tax capital inflows in good times and subsidize external borrowing in bad times. Under ...

In standardWalrasian macro-finance models, pecuniary externalities such as fire sales lead to overinvestment in illiquid assets or underprovision of liquidity. We investigate whether imperfect competition (Cournot) improves welfare through internalizing the externality and find that this is far from guaranteed. In a standard model of liquidity shocks, when liquidity is sufficiently scarce, Cour...

An open puzzle for climate-policy analysis is how policies could be made sensitive to climate change impacts spanning over centuries while keeping the shorterterm macroeconomic policies connected to the descriptive facts. We develop a tractable general-equilibrium model for climate-economy interactions with timedeclining pure discounting. The model resolves the puzzle: preferences over longterm...

We study how the imposition of a redemption fee affects runs on financial institutions when investors are asymmetrically informed about fundamentals. Although the fee eliminates the first-mover advantage by internalizing the payoff externality and, therefore, discourages runs by informed investors, it also alters the information externality by influencing uninformed investors’ learning and may,...

air pollution is an example of a negative externality; it imposes harmful effects and costs on people other than polluters. in controlling air pollution, efficiency argument implies that, there is a rolefor the government to play. studies show that taxation of fuels can be a powerful indirect instrumentfor controlling air polluticn because of the association between fuels use and emissions. in ...