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Economic Theory

, Volume 2, Issue 1, pp 43–68 | Cite as

On characterizing equilibria of economies with externalities and taxes as solutions to optimization problems

  • Timothy J. Kehoe
  • David K. Levine
  • Paul M. Romer
Research Articles

Summary

We characterize equilibria of general equilibrium models with externalities and taxes as solutions to optimization problems. This characterization is similar to Negishi's characterization of equilibria of economies without externalities or taxes as solutions to social planning problems. It is often useful for computing equilibria or deriving their properties. Frequently, however, finding the optimization problem that a particular equilibrium solves is difficult. This is especially true in economies with multiple equilibria. In a dynamic economy with externalities or taxes there may be a robust continuum of equilibria even if there is a representative consumer. This indeterminacy of equilibria is closely related to that in overlapping generations economies.

Keywords

Economic Theory Planning Problem Equilibrium Model General Equilibrium Multiple Equilibrium 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag 1992

Authors and Affiliations

  • Timothy J. Kehoe
    • 1
    • 2
  • David K. Levine
    • 3
    • 2
  • Paul M. Romer
    • 4
    • 2
  1. 1.Department of EconomicsUniversity of MinnesotaMinneapolisUSA
  2. 2.Research DepartmentFederal Reserve Bank of MinneapolisMinneapolisUSA
  3. 3.Department of EconomicsUniversity of CaliforniaLos AngelesUSA
  4. 4.Department of EconomicsUniversity of CaliforniaBerkeleyUSA

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