Economic Theory

, Volume 29, Issue 3, pp 565–589 | Cite as

Externalities, monopoly and the objective function of the firm

  • David KelseyEmail author
  • Frank Milne
Research Article


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


Externality General equilibrium Two-part tariff Objective function of the firm 

JEL Classification

D520 D700 L200 


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Copyright information

© Springer-Verlag 2005

Authors and Affiliations

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

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