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On the definition of externality as a missing market

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  • Nathalie Berta

Abstract

Within the general equilibrium framework, externalities are regarded as missing markets which invalidate the first theorem of welfare economics. As witnessed by some authors’ positions in the 1970s, this definition does not highlight whether or not it is an exogenous and an unintended effect. These ambiguities raise the issue of the relation between the basic formalisation of an externality (a dependence of individual objective functions) and its economic meaning (a missing market). Finally, they also raise the more general issue of the dilution of externality in the larger notion of individual interaction.

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  • Nathalie Berta, 2017. "On the definition of externality as a missing market," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 24(2), pages 287-318, March.
    • Handle: RePEc:taf:eujhet:v:24:y:2017:i:2:p:287-318
    DOI: 10.1080/09672567.2016.1169304
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    Cited by:

    1. Elodie Bertrand, 2019. "Much ado about nothing? The controversy over the validity of the Coase theorem," Post-Print hal-03479468, HAL.
    2. Berta, Nathalie, 2020. "Efficiency without Optimality: A Pragmatic Compromise for Environmental Policies in the Late 1960s," OSF Preprints wp2xf, Center for Open Science.

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