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Existence, Local Uniqueness, and Optimality of a Marginal Cost Pricing Equilibrium in an Economy with Increasing Returns

Brown, Donald J. and Heal, Geoffrey M. (1982) Existence, Local Uniqueness, and Optimality of a Marginal Cost Pricing Equilibrium in an Economy with Increasing Returns. Social Science Working Paper, 415. California Institute of Technology , Pasadena, CA. (Unpublished)

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This paper proposes a notion of equilibrium for an economy with increasing returns to scale and gives sufficient conditions for its existence and local uniqueness. The optimality properties of this equilibrium notion follows from our previous investigations on economies with increasing returns. The notion of equilibrium used in this paper, i.e. a marginal cost pricing equilibrium, is a family of consumption plans, production plans, prices and lump sum taxes such that: all the first order conditions are satisfied in equilibrium; the lump sum taxes cover the aggregate losses of firms with increasing returns to scale; all markets for goods and services clear. The intended model is an economy with a regulated natural monopoly and a large number of unregulated competitive firms.

Item Type:Report or Paper (Working Paper)
Additional Information:This research was supported in part by grants from the NSF to Yale University. This paper was completed during Brown's tenure as a Sherman Fairchild Distinguished Scholar at Caltech. We wish to thank Graciela Chichilnisky and our colleagues at Yale, Essex, and Caltech for their useful comments and lively discussions on increasing returns. In addition, we thank H. Samelson for allowing us to include his theorem on diffeomorphic images of smooth compact convex sets, Proposition.
Group:Social Science Working Papers
Funding AgencyGrant Number
Sherman Fairchild FoundationUNSPECIFIED
Series Name:Social Science Working Paper
Issue or Number:415
Record Number:CaltechAUTHORS:20171003-155342474
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:82016
Deposited By: Jacquelyn Bussone
Deposited On:04 Oct 2017 19:00
Last Modified:03 Oct 2019 18:49

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