A Caltech Library Service

Separability and vanishing externalities

Montgomery, W. David (1976) Separability and vanishing externalities. American Economic Review, 66 (1). pp. 174-177. ISSN 0002-8282.

[img] PDF - Published Version
See Usage Policy.


Use this Persistent URL to link to this item:


In one of the most influential papers written on the subject of externalities, Otto Davis and Andrew Whinston argue that corrective taxes and private bargaining are likely to achieve an optimum in the presence of mutual externalities between two firms only when externalities are separable, in the sense that marginal cost is independent of the level of externality. Further analysis of the concept of separability reveals that even this conclusion is too optimistic. I shall argue below that the assumptions needed to make taxes and negotiations work properly rule out the possibility of having externalities in any observable situation.

Item Type:Article
Related URLs:
URLURL TypeDescription
Additional Information:© 1976 American Economic Association. I am indebted to Joel Franklin, David Grether, and James Quirk for substantial mathematical assistance and moral support. Research support was provided by the Environmental Quality Laboratory of the California Institute of Technology. Formerly SSWP 74.
Group:Environmental Quality Laboratory
Funding AgencyGrant Number
Environmental Quality LaboratoryUNSPECIFIED
Subject Keywords:Cost functions, Production functions, Economic externalities, Business structures, Capital costs, Mathematical functions, Marginal costs, Production costs, Taxes, Dominant strategy
Issue or Number:1
Record Number:CaltechAUTHORS:20171205-145056916
Persistent URL:
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:83702
Deposited By: Jacquelyn Bussone
Deposited On:02 Jan 2018 23:32
Last Modified:03 Oct 2019 19:09

Repository Staff Only: item control page