• Table of Contents
    • Abstract
    • Keywords
    • Article
      • Technological externalities
      • Pecuniary externalities
      • Competitive equilibrium with externalities
      • Markets for pollution rights
      • Taxation of externalities
      • Imperfect information
      • Planning and externalities
      • Externalities and cooperative game theory
      • Historical note
    • See Also
    • Bibliography
    • How to cite this article


J.J. Laffont
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by Steven N. Durlauf and Lawrence E. Blume
Alternate versions available: 1987 Edition
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Externalities are indirect effects of consumption or production activity, that is, effects on agents other than the originator of such activity which do not work through the price system. In a private competitive economy, equilibria will not be in general Pareto optimal since they will reflect only private (direct) effects and not social (direct plus indirect) effects of economic activity. This article explains how this outcome arises and considers the policy responses that have been advanced to remedy the market failures stemming from externalities.
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How to cite this article

Laffont, J.J. "externalities." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 18 January 2018 <http://www.dictionaryofeconomics.com/article?id=pde2008_E000200> doi:10.1057/9780230226203.0537

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