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

abstract

• 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.

authors

• Tian, Guoqiang

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

publisher

• Springer Nature  Publisher

published in

• Economic Theory  Journal

keywords

• 38 Economics
• 3801 Applied Economics
• 3803 Economic Theory

Digital Object Identifier (DOI)

• 10.1007/s00199-008-0342-z

start page

• 399

end page

• 424

volume

• 39

issue

• 3

URL

• http://dx.doi.org/10.1007/s00199-008-0342-z