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Working Paper Series

Consumption Externalities, Rental Markets and Purchase Clubs


  • Suzanne Scotchmer, Goldman School of Public Policy, University of California, Berkeley


  • Goldman School of Public Policy Working Paper (May 2005)


A premise of general equilibrium theory is that private goods are rival. Nevertheless, many private goods are shared, e.g., through borrowing, through coownership, or simply because one person’s consumption affects another person’s wellbeing. I analyze consumption externalities from the perspective of club theory, and argue that, provided consumption externalities are limited in scope, they can be internalized through membership fees to groups. Two important applications are to rental markets and “purchase clubs,” in which members share the goods that they have individually purchased.

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