Externalities, Monopoly and the Objective Function of the Firm
Paper number: 06/04
Paper date: 21st June, 2004
Paper Category: Working Paper
David Kelsey and Frank Milne
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 maximizing 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.