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Journal Articles Journal of the History of Economic Thought Year : 2014

MARKET INTERNALIZATION OF EXTERNALITIES: WHAT IS FAILING?

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Abstract

The usual internalization of externality ‘by the market’ can be thought of through two different exchange modes: competitive markets, with Kenneth J. Arrow (1969); or bargaining, with Ronald H. Coase (1960). Although, in both cases, ‘externality’ refers to a non-exchanged effect that produces suboptimalities, these authors are working with two different, implicit conceptions of externality, rooted in different analytical worlds and calling for different institutions—parametric prices for the former but not for the latter. Moreover, while both start out with different theoretical frameworks, the authors share a concern for realism and unite when they introduce transaction costs, both advocating a policy design that calls for taking into account the costs of the different solutions. Nevertheless, this introduction of transaction costs does not itself escape consistency problems, since they do both maintain a reference to their respective ideal worlds.
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Dates and versions

hal-02095867 , version 1 (10-04-2019)

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Nathalie Berta, Elodie Bertrand. MARKET INTERNALIZATION OF EXTERNALITIES: WHAT IS FAILING?. Journal of the History of Economic Thought, 2014, 36 (03), pp.331-357. ⟨10.1017/S1053837214000364⟩. ⟨hal-02095867⟩
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