Externalities, Internalization and Fluctuations

H. CRES, M. Tvede, C. Ghiglino

International Economic Review

mai 1997, vol. 38, n°2, pp.465-477

Départements : Finance

In this paper we introduce consumption externalities as developed by Arrow in overlapping-generations economies. We show how the internalization of externalities-through exchanges at markets for externalities-may give rise to new phenomena such as altered stability properties and fluctuations, even though it restores optimality.