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Externalities, Decreasing Returns, and Common Ownership

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  • Simpson, R. David

Abstract

Placing production units under common ownership is often suggested as a solution to the problem of externalities. This will not always be true when there are decreasing returns to scale. An atomistic industry could be more efficient than a monopoly in some instances. Even when the "optimal" industry configuration would involve a finite number of producers, no two may have appropriate incentives to combine. An omniscient and benign regulator can always assure a more efficient outcome than would result from the combination of private producers. Whether real-world regulators should be called upon, however, is less clear.

Suggested Citation

  • Simpson, R. David, 2001. "Externalities, Decreasing Returns, and Common Ownership," RFF Working Paper Series dp-01-41, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-01-41
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-01-41.pdf
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    References listed on IDEAS

    as
    1. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
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    More about this item

    Keywords

    Externalities; Mergers; Returns to Scale; Incentives;
    All these keywords.

    JEL classification:

    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land

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