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- Title
MARKET INTERNALIZATION OF EXTERNALITIES: WHAT IS FAILING?
- Authors
Berta, Nathalie; Bertrand, Elodie
- Abstract
The usual internalization of externality ‘by the market’ can be thought of through two different exchange modes: competitive markets, with Kenneth J. Arrow (1969); or bargaining, with Ronald H. Coase (1960). Although, in both cases, ‘externality’ refers to a non-exchanged effect that produces suboptimalities, these authors are working with two different, implicit conceptions of externality, rooted in different analytical worlds and calling for different institutions—parametric prices for the former but not for the latter. Moreover, while both start out with different theoretical frameworks, the authors share a concern for realism and unite when they introduce transaction costs, both advocating a policy design that calls for taking into account the costs of the different solutions. Nevertheless, this introduction of transaction costs does not itself escape consistency problems, since they do both maintain a reference to their respective ideal worlds.
- Subjects
EXTERNALITIES; MARKETS &; society; COASE, R. H. (Ronald Harry), 1910-2013; ARROW, Kenneth Joseph, 1921-2017; ECONOMIC competition; TRANSACTION costs; COASE theorem; ECONOMIC equilibrium; TWENTIETH century; HISTORY
- Publication
Journal of the History of Economic Thought (Cambridge University Press), 2014, Vol 36, Issue 3, p331
- ISSN
1053-8372
- Publication type
Article
- DOI
10.1017/S1053837214000364