Externalities, Monopoly And The Objective Function Of The Firm

This paper provides a theory of general equilibrium with externalities and/or monopoly. We assume that the …rm’s decisions are based on the preferences of shareholders and/or other stakeholders. Under these assumptions a …rm will produce fewer negative externalities than the comparable pro…t maximising …rm. In the absence of externalities, equilibrium with a monopoly will be Pareto efficient if the …rm can price discriminate. The equilibrium can be implemented by a 2-part tariff.