ABSTRACT

A good which is both rival and excludable is called a pure private good. These goods form a major share of economic activity but it is difficult to specify how big this share is. The other types of goods together can be as significant in extent. We turn to these from now on. In this

5.1 On characteristics of goods 69 5.2 The problem of externalities 71 5.3 Positive externalities: some principles 74 5.4 Positive externalities: some examples from industrial policy 76 5.5 Negative externalities: some principles 88 5.6 Negative externalities: some examples from environmental policy 90

and the next chapter we analyse the consequences for the nexus between competitive equilibrium and Pareto-optimal allocations of goods that are non-excludable and those that are non-rival. These phenomena were referred to in the introductory chapters, as externalities and collectivities, respectively. In this chapter we deal with policy responses to externalities in the form of industrial and environmental policy. In the next chapter we turn to policy responses to collectivities in the form of public goods and merit goods. But first we discuss linkages between the different characteristics of goods.