The Positive Analysis of Consumption Externalities

The Positive Analysis of Consumption Externalities (J.E.L. D11, D62) We present a survey on the positive analysis of consumption externalities. The aim is to analyse the effect of externalities on individual behaviour in a partial equilibrium framework. After a general discussion on external effects on individual decisions, we analyse the implications on utility and demand of different formalisations of these phenomena. Firstly, we present models in which the externality is a parameter, then we focus on most recent developments in which the externality is a function. We conclude with a discussion on the restrictions required to test the presence of externality in markets. We present also a new behavioural definition and an extensive model of externality which includes public goods.