Economic Theory

, Volume 29, Issue 3, pp 565–589

Externalities, monopoly and the objective function of the firm

Research Article

DOI: 10.1007/s00199-005-0036-8

Cite this article as:
Kelsey, D. & Milne, F. Economic Theory (2006) 29: 565. doi:10.1007/s00199-005-0036-8


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 maximising 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 two-part tariff


ExternalityGeneral equilibriumTwo-part tariffObjective function of the firm

JEL Classification


Copyright information

© Springer-Verlag 2005

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of ExeterExeterEngland
  2. 2.Department of EconomicsQueens UniversityKingstonCanada