Welfare Paradoxes of Endogenous Externalities

Abstract

Social economists have studied the effects of interdependent utilities, interdependent consumer behavior, and externalities for years. Dugger (1985) observed that the work of social economists has had little impact on the rest of the economics profession because of lack of abstract analytical for presenting our insights others in a formal way. (Dugger, 1985, p. 212) McKee, likewise, identified a need to build bridges (between social economics) and central micro and macro theory. (1984, pp. 14-15) Dugger (1985) presented one formal way in which social economists can present their ideas on consumer interdependence other economists. This paper has two objectives. One is complement and extend Dugger's work. It represents an alternative formalization of interde? pendence. Dugger studied a two-person world. This paper deals with a many-person world: one consumer whose behavior is being modeled, and everyone else. Dugger presented a dynamic novel formulation. This paper uses a static, neoclassical formulation. Dugger studied the relation of income change interdependence. This paper studies this relation and also the relation of price change interdependence. The second objective of this paper is present a general, abstract, analytical framework that will serve as a between social economists and other economists. This paper uses terms that are familiar welfare economists, theoretical welfare economists and applied welfare economists working in such areas as: economic development, environmental issues, technology assessment, and farm and food policy. Building of McKee's bridge is facilitated by formulating arguments in terms that are familiar social economists and central microand macro-economists. I have tried formulate my argument in such terms.