Theory of negative consumption externalities with applications to the economics of happiness Academic Article uri icon


  • This paper investigates the problem of obtaining Pareto efficient allocations in the presence of negative consumption externalities. In contrast to the conventional wisdom, we show that even if consumers' preferences are monotonically increasing in their own consumption, one may have to dispose of resources to achieve Pareto efficiency when negative consumption externalities exist. We provide characterization results on destruction both for pure exchange economies and for production economies. As an application, our results provide an explanation to Easterlin's paradox: average happiness levels do not increase as countries grow wealthier. 2008 Springer-Verlag.

published proceedings

  • Economic Theory

author list (cited authors)

  • Tian, G., & Yang, L.

citation count

  • 6

complete list of authors

  • Tian, Guoqiang||Yang, Liyan

publication date

  • June 2009