Chapter 7

Production Externalities

Abstract

Chapter 7 analyzes production externalities with pollution serving as the main example to illustrate the theory. After developing the general model, the chapter turns to a number of specific issues, including a comparison of taxes and subsidies to reduce pollution, the advisibility of compensating the victims of pollution, Coase bargaining to solve pollution problems, and the possibility of nonconvexities with production externalities.

Keywords

Aggregate production externality; Nonconvex production possibilities; Pareto-optimal conditions; Pigovian tax; Production externality

Get Public Finance, 3rd Edition now with the O’Reilly learning platform.

O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.

Start your free trial