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The Quasi-Optimal Price of Undepletable Externalities

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  • William A. Hamlen

Abstract

This paper extends the Baumol-Oates result which proves that a fee (subsidy) which achieves a given level of an undepletable externality (pure public good), does so at a minimum cost to society. The extension proves that such a fee (subsidy) is also a quasi-optimal Pareto solution for a competitive economy. Any estimate of the initial fee (subsidy) should be evaluated through a benefit-cost approach rather than through the minimum cost approach which requires the assumption of fixed inputs. In addition, it is shown that no knowledge of the marginal utilities of the externalities (public good) to consumers is necessary to evaluate the quasi-(Pareto) optimal solution.

Suggested Citation

  • William A. Hamlen, 1977. "The Quasi-Optimal Price of Undepletable Externalities," Bell Journal of Economics, The RAND Corporation, vol. 8(1), pages 324-334, Spring.
    • Handle: RePEc:rje:bellje:v:8:y:1977:i:spring:p:324-334
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    Cited by:

    1. Smith, Richard D. & Coast, Joanna, 1998. "Controlling antimicrobial resistance: a proposed transferable permit market," Health Policy, Elsevier, vol. 43(3), pages 219-232, March.
    2. Zilberman, David & Just, Richard, 1980. "A Dynamic Putty-Clay Model of Pollution Control," CUDARE Working Papers 198211, University of California, Berkeley, Department of Agricultural and Resource Economics.

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