On the Assignment of Liability: The Uniform Case
Volume: Volume 6, No. 2
Issue: Autumn 1975
Pages: pp. 487-516
Authors: Peter A. Diamond and James A. Mirrlees
Title: On the Assignment of Liability: The Uniform Case
Abstract: It is feasible in some competitive equilibria with externalities to shift some externality costs among different agents in the economy. However, simply shifting costs will not, in general, result in efficient allocation decisions by all agents, since the magnitude of externality costs depends on the decisions of several agents. Comparing different resource allocations arising from two different patterns of cost bearing is thus a comparison of two inefficient equilibria. This paper explores several sets of assumptions which are sufficient to determine which allocation is more efficient. These assumptions help to identify the agent Calabresi has called the cheapest cost avoider.
JEL Classification
Welfare Theory Externalities (0244)