Externalities, Monopoly and the Objective Function of the Firm

Abstract

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 e¢ -cient if the …rm can price discriminate. The equilibrium can be implemented by a 2-part tari¤.

Asset Prices and Portfolios with Externalities

“…While they motivate divestment by moral investors as the result of internalizing negative externalities, their theoretical aim is the modeling of management incentives, and the reasons for divestment are not explicitly modeled: moral investors are simply constrained not to hold stock in immoral firms. In a model without agency frictions, Kelsey and Milne (2006) show that it is not optimal for firms to pursue a profit-maximizing strategy when there are externalities, and that shareholders will demand a reduction in the externality relative to the profit-maximizing case. To tractably analyze the firm's optimal decision, they abstract from risk or trade in financial assets, which are central features of our analysis.…”

Takeovers and cooperatives: governance and stability in non-corporate firms

“…However the analysis would also apply to some other market distortions. Similar arguments have been advanced to show that industrial democracy can reduce the impact of asymmetric information (Hansmann (1996)) and externalities (Kelsey and Milne (2006) and Roemer (1993)). Consider a …rm which produces an externality.…”

“…These arguments show that consumer ownership of monopolies may be bene…cial, see, Demichelis andRitzberger (2006), Farrell (1985) and Kelsey and Milne (2008). In circumstances where competition is not possible, monopoly distortions are reduced without government intervention.…”

“…It is possible that this e¤ect is su¢ ciently strong for the ex-post pro…t to be lower. For a more detailed discussion of the relation between corporate governance and product market equilibrium see Kelsey and Milne (2008). …”

Non-Profits and the Profit Non-Distribution Constraint with Selfish Entrepreneurial Motivations

“…If a mutual firm is allowed (by the law, internal by-laws, customs) to practice price discrimination, members will obviously choose a different price for non-members so as to extract a rent from them, much like a monopolist serving two separate markets (cf. Kelsey and Milne, 2006). The discrimination case, however, is actually not very interesting from a theoretical standpoint, as it is just a replica of the standard discriminating monopoly.…”