Economic Policy in the Age of Globalisation by Nicola Acocella

By Nicola Acocella

Within the age of globalization, either family and overseas fiscal regulations play a tremendous function in opting for organizations' suggestions. even as, corporations' offerings have a better impression on fiscal policymaking in an international economic system, because the variety of possible choices open to them expands. Nicola Acocella analyzes either side of this courting and areas targeted emphasis on present concerns. wide in scope, this e-book is aimed toward scholars who've accomplished an introductory direction in either micro- and macro-economics.

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In the presence of external economies, the marginal private cost is greater than the marginal social cost. By contrast, external diseconomies result in higher marginal social costs than marginal private costs. The opposite holds for the marginal product. This has important consequences. Take the example of a polluting factory. The polluter does not have to bear the social cost of the pollution and, therefore, in equalising his (private) marginal cost and price he will produce a higher level of output than he would if the social cost of pollution were also included in his calculations.

In this regard he makes the following two propositions: (1) If a number of conditions are satisfied (including prior assignment of property rights and absence of transaction costs),29 agents affected by externalities can reach mutually beneficial agreements without government intervention; moreover, if there is only one position that maximises social wealth, the agents involved will reach that position regardless of the way property rights are assigned. (2) If there are transaction costs, the possibility of reaching the most efficient position through the market can depend on how property rights are assigned; therefore, property rights should be assigned in such a way as to ensure that the most efficient position (which is not necessarily unique) will be reached (see Coase, 1960).

28 Government intervention can remove the divergence between social and private cost (or product) by internalising the cost or benefit to society caused by the activity of a firm or individual. 6. In particular, the government can levy taxes (known as Pigovian taxes, as they were initially suggested by Pigou; see Pigou, 1920, chapter XI; 1928) on those who create external diseconomies or it can use regulation to prevent the creation of diseconomies. 2 would not ensure Pareto optimality. With regard, for example, to general efficiency, in such circumstances the position of at least one individual (the person affected by the external diseconomy or the external economy) could improve if we produced, respectively, 1 unit less or more of the good that generates the externality, and correspondingly reduced or increased the quantity of the good assigned to the person who causes the externality.

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