Externalities, monopoly and the objective function of the firm
University of Exeter; Queen's University, Kingston, Ontario
University of Birmingham
This paper provides a theory of general equilibrium with externalities and/or monopoly. We assume that the firm's decisions are based on the preferences of shareholders and/or other stakeholders. Under these assumptions a firm will produce fewer negative externalities than the comparable profit maximising firm. In the absence of externalities, equilibrium with a monopoly will be Pareto efficient if the firm can price discriminate. The equilibrium can be implemented by a 2-part tariff.
University of Birmingham Economics Working Paper No. 02-01