Journal of Economics

, Volume 121, Issue 1, pp 75–98 | Cite as

Private ownership economies with externalities and existence of competitive equilibria: a differentiable approach

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Abstract

We consider a general equilibrium model of a private ownership economy with consumption and production externalities. Utility functions and production technologies may be affected by the consumption and production activities of all other agents in the economy. We use homotopy techniques to show that the set of competitive equilibria is non-empty and compact. Fixing the externalities, the assumptions on utility functions and production technologies are standard in a differentiable framework. Competitive equilibria are written in terms of first order conditions associated with agents’ behavior and market clearing conditions, following the seminal paper of Smale (J Math Econ 1:1–14, 1974). The work of adapting the homotopy approach to economies with externalities on the production side is non-trivial and it requires some ingenious adjustments, because the production technologies are not required to be convex with respect to the consumption and production activities of all agents.

Keywords

Externalities Private ownership economy Competitive equilibrium Homotopy approach 

JEL Classification

C62 D51 D62 

Notes

Acknowledgements

This paper dates back to 2011 and it has been available on the website: http://www.parisschoolofeconomics.eu/fr/del-mercato-elena/publications. We are delighted that this paper has been quoted by Balasko (2015). Furthermore, we have recently found a similar contribution in Ericson and Kung (2015). The 2011’s version has been presented at the Public Economic Theory (PET 10) and Public Goods, Public Projects, Externalities (PGPPE) Closing Conference, Bogazici University, 2010, and the Fifth Economic Behavior and Interaction Models (EBIM) Doctoral Workshop on Economic Theory, Bielefeld University, 2010. We thank the participants of these conferences for useful comments. We are grateful to two anonymous referees of this journal for their detailed comments and suggestions. Finally, we acknowledge the support of the Alliance Joint Project “Asymmetric Information, Externalities and Restricted Participation”, Columbia University and Université Paris 1 Panthéon–Sorbonne, 2016–2017.

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Copyright information

© Springer-Verlag Wien 2017

Authors and Affiliations

  1. 1.Paris School of EconomicsUniversité Paris 1 Panthéon-Sorbonne and Centre d’Economie de la SorbonneParis Cedex 13France
  2. 2.Department of Economics and StatisticsUniversity of Naples Federico II and CSEFNapoliItaly

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