When scientists choose research projects with the highest expected value an externality can appear; slight variations on existing work will be selected in preference to new lines of research that would ultimately generate more value. New research enjoys two advantages: it is riskier and hence more likely to lead to high-value follow-up projects and it can generate more follow-up projects. Less ...

Consumers sometimes make choices that impose greater external costs on those who do not make the same choice. This paper examines how the selectivity of negative externalities in such situations affects the competitive equilibrium and the desirability of an externality-reducing public policy. Selective negative externalities create network externalities, but outcomes may differ greatly from typ...

Standard microeconomic theory proves that, when a externality occurs, the solution of the social cost problem requires that the producers face an additional cost identical to the marginal damage caused by them at the efficient level of the externality. Pigouvian taxes, and adequately designed property rights markets, are both political instruments to put this theory into practice. Nevertheless,...

This paper studies a risk-sharing model where traders face endowment shocks and information asymmetries. We show that a negative participation externality arises due to the endogenous information aggregation by prices, and it creates a counter force to a standard positive externality of risk-sharing. As a result, the optimal market size that maximizes gains from trade per trader is finite. The ...

When scientists choose research projects with the highest expected value an externality can appear; slight variations on existing work will be selected in preference to new lines of research that would ultimately generate more value. New research enjoys two advantages: it is riskier and hence more likely to lead to high-value spin-o¤ projects and it can generate more spin-o¤ projects. Less comm...

This study develops a theoretical general equilibrium model to examine optimal externality tax policy in the presence of externalities linked to one another through markets rather than technical production relationships. Analytical results reveal that the second-best externality tax rate may be greater or less than the first-best rate, depending largely on the elasticity of substitution between...

When product markets are monopolistic, an income redistributive policy affects social welfare not only through changes in disposable income but also through changes in product prices. In the optimal income tax formula, we then obtain a Pigouvian term correcting for this price externality. We provide sufficient conditions when the Pigouvian term is progressive among top earners. Moreover, if the...

In this paper we propose a method to estimate externality effects in cash transfer programmes, even in cases when the benefit is not randomly assigned. Externality is assessed through the decomposition of the average treatment effect on the treated (ATT) into participation (direct) effect and externality (indirect) effect. We also suggest a nonparametric decomposition to investigate whether cha...