Allocation Problems in a Market Economy
The following sections contain a formal description of the solution of the allocation problems in a simple model of a market economy. The analysis is first restricted to the case of an economy with private commodities on regular markets, which serves as a “benchmark”. Thereafter the investigations are extended to an economy which includes environmental or external effects. The formal model, which is adjusted to allow for special externalities, reveals the impact of environmental effects on the basic structure of the economy and the effects on the functioning of the market mechanism. The final section refers to public commodities and the public good characteristics of many environmental commodities.
KeywordsAllocation Problem Kyoto Protocol External Effect Market Equilibrium International Energy Agency
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