Stability of Equilibria with Externalities.

It is shown that, in a class of models with multiple externalities (one positive and one negative), all stationary equilibria may be locally stable to perturbations, in the sense that there exist perfect foresight trajectories leading back to the equil ibrium. Thus, scale diseconomies (arising, for example, out of a comm on resource pool) generally overturn the Liviatan-Samuelson result th at equilibria are either saddlepoints or sources. Copyright 1988, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.