Unit- I

Studying the concepts related to externality and public goods can be complex, so it's essential to
follow a logical and progressive order to understand the topic thoroughly.

Here's a recommended order for studying the concepts:

1. Introduction to Externality and Public Goods:
- Begin by understanding what externalities and public goods are in economics. Externalities refer
to the uncompensated impact of one person's actions on the well-being of others in the market.
Public goods are goods that are non-excludable and non-rivalrous, making them challenging to
provide through the market mechanism.

2. Market Failure and the Need for Intervention:

- Learn about market failures caused by externalities and public goods. Understand why the market
alone may not efficiently allocate resources in these situations, leading to the need for intervention.

3. Pigouvian Solution:
- Explore the Pigouvian approach to externalities, named after economist Arthur Pigou. This
involves using taxes or subsidies to internalize external costs or benefits to correct market failures.

4. Coase's Theorem and Its Critique:

- Study Coase's theorem, proposed by economist Ronald Coase, which suggests that under certain
conditions, private parties can bargain and solve the externality problem without government
intervention. Examine critiques and limitations of Coase's theorem to understand its applicability.

5. Buchanan's Theory:
- Learn about the contributions of economist James Buchanan, particularly his work related to
public goods and collective decision-making.

6. Pigouvian vs. Coasian Solution:

- Compare and contrast the Pigouvian and Coasian approaches to addressing externalities.
Understand the advantages and disadvantages of each method.

7. Detrimental Externality:
- Dive deeper into detrimental externalities and their implications on market efficiency and social
welfare.

8. Non-Convexities in the Production Set:

- Explore non-convex production sets and how they can lead to inefficiencies in resource
allocation.

By following this recommended order, you'll build a solid foundation of knowledge on externality
and public goods concepts, their implications on market failure, and the various approaches to
address these issues. Remember to take your time to understand each concept fully before moving
on to the next one, as they are interrelated and may require a comprehensive understanding to
grasp the entire topic effectively.
Topic No. 1: Introduction to Externality and Public Goods.

1. What is Externality?
Externality is a concept in economics that refers to the uncompensated impact of one person's
actions on the well-being of others in the market. In other words, it is a spillover effect that affects
individuals or parties who are not directly involved in a transaction or decision-making process.
Externalities can be either positive or negative.

- Positive Externality: Occurs when an individual's actions generate benefits for others
without any compensation. For example, planting trees in a neighborhood not only
beautifies the area for the individual doing the planting but also improves the air quality and
aesthetics for the entire community.
- Negative Externality: Occurs when an individual's actions impose costs on others without
any compensation. For example, pollution from a factory might harm the health and
environment of nearby residents, who bear the costs without receiving any payment.

2. What are Public Goods?

Public goods are goods that are non-excludable and non-rivalrous. Non-excludable means that
individuals cannot be effectively excluded from using the good, even if they do not pay for it. Non-
rivalrous means that one person's use or consumption of the good does not diminish its availability
or utility for others.

- Non-Excludable: Once a public good is provided, it is challenging to prevent individuals from

benefiting from it, regardless of whether they contributed to its provision or not. For
example, national defense is a public good; if a country provides defense to its citizens, it is
difficult to exclude any citizen from its protection.
- Non-Rivalrous: The consumption of a public good by one individual does not reduce the
availability or utility of that good for others. For example, the enjoyment of a beautiful
sunset by one person does not prevent others from also enjoying the same sunset.

Apologies for the confusion, but it seems there was a misunderstanding in the order of topics. We
have already covered Topic No. 2, which was about the "Pigouvian Solution." The correct title for
Topic No. 1 was "Introduction to Externality and Public Goods."

Topic No. 2: Market Failure and the Need for Intervention

1. Market Failure:
Market failure occurs when the free market, left to its own devices without intervention, fails to
efficiently allocate resources and achieve the optimal outcomes for society. There are several
reasons why market failures can arise:

- Externalities: As discussed in Topic No. 1, externalities can lead to market failure when the
actions of producers or consumers create spillover effects that impact third parties who are
 not involved in the initial transaction. Externalities can result in overproduction or
underproduction of certain goods or services relative to the socially optimal level.
- Public Goods: Public goods, which are non-excludable and non-rivalrous, can also cause
market failure. Since individuals can enjoy the benefits of public goods without paying for
them, there is a lack of incentive for private firms to provide these goods in sufficient
quantities.
- Market Power: Market power refers to the ability of individual firms or entities to influence
the market price or quantity of a good or service. Monopolies and oligopolies can exploit
their market power to charge higher prices or restrict output, leading to suboptimal
outcomes.
- Asymmetric Information: When one party in a transaction has more information than the
other, it can lead to information asymmetry. This can result in adverse selection and moral
hazard, leading to inefficient resource allocation.

2. Need for Intervention:

Government intervention becomes necessary in certain situations of market failure to improve
economic efficiency and achieve socially desirable outcomes. Some reasons why intervention may
be required are as follows:

- Correcting Externalities: As discussed in Topic No. 2, negative externalities require

intervention to internalize the external costs and incentivize producers and consumers to
take into account the broader social impact of their actions.
- Providing Public Goods: Since private firms have little incentive to supply public goods due to
their non-excludable and non-rivalrous nature, the government often steps in to provide and
finance these goods for the overall benefit of society.
- Regulating Monopoly Power: Government intervention may be necessary to regulate
monopolies and prevent the abuse of market power, ensuring fair competition and
reasonable prices for consumers.
- Addressing Information Asymmetry: Government regulations, such as consumer protection
laws and disclosure requirements, can help address information asymmetry issues and
protect consumers' interests.
- Stabilizing the Economy: In times of economic instability, the government can use fiscal and
monetary policies to stabilize the economy, promote growth, and reduce unemployment.

3. Types of Government Intervention:

Government intervention can take various forms, including:

- Taxes and Subsidies: As seen in the Pigouvian Solution, taxes and subsidies can be used to
internalize externalities and encourage or discourage certain behaviors.
- Regulation: Governments may implement regulations to set standards, safety requirements,
and environmental protections, ensuring that businesses operate in a socially responsible
manner.
- Public Provision: In the case of public goods, the government directly provides these goods
and services, funded through taxes.
- Antitrust Laws: Governments can enforce antitrust laws to prevent monopolies and promote
competition in the market.
 - Fiscal and Monetary Policies: Governments can use fiscal measures (spending and taxation)
and monetary measures (interest rates and money supply) to influence economic growth
and stability.

In summary, market failure occurs when the market mechanism fails to allocate resources
efficiently, leading to the need for government intervention. Various types of intervention can be
used to correct externalities, provide public goods, regulate market power, address information
asymmetry, and stabilize the economy. However, the effectiveness of intervention depends on
careful analysis, implementation, and consideration of potential unintended consequences.In
summary, understanding the concepts of externality and public goods is crucial to comprehend how
certain market failures arise and why there is a need for government intervention to address these
inefficiencies. As you proceed to the next topics, keep these foundational concepts in mind to build
upon your knowledge.

Topic No. 3: Pigouvian Solution

The Pigouvian Solution is an economic concept named after the British economist Arthur C. Pigou. It
proposes a policy intervention to address market failures caused by negative externalities. The goal
of the Pigouvian Solution is to internalize the external costs imposed by certain economic activities,
ensuring that the parties responsible for generating negative externalities bear the full cost of their
actions. This helps achieve a more efficient allocation of resources and a socially optimal outcome.

1. What is the Pigouvian Tax?

The primary policy instrument of the Pigouvian Solution is the Pigouvian tax, also known as
corrective or externality tax. When a negative externality exists, the government imposes a tax on
the activity or product that generates the external cost. The tax is equal to the value of the external
cost per unit of output. By doing so, the government makes the producer or consumer internalize
the external cost, leading to a reduction in the quantity of the good or service produced or
consumed, and ultimately reducing the negative externality.

Example of Pigouvian Tax:

Suppose there is a factory emitting pollution, which causes health problems for nearby residents.
The government can impose a Pigouvian tax on the factory for each unit of pollution emitted. As a
result, the factory will have an incentive to reduce its pollution output to minimize the tax burden,
leading to a decrease in pollution and better overall social welfare.

2. Pigouvian Subsidies:
In addition to Pigouvian taxes for negative externalities, Pigouvian subsidies can be used to address
positive externalities. A Pigouvian subsidy is a payment made by the government to producers or
consumers of a good or service that generates positive externalities. The subsidy helps incentivize
the production or consumption of the socially beneficial product, leading to a more socially optimal
level of output.

Example of Pigouvian Subsidy:

If there is a positive externality associated with education (e.g., an educated workforce benefits
society through higher productivity and innovation), the government can provide subsidies to
educational institutions or students to encourage more education, leading to increased positive
spillover effects.

3. Efficient Resource Allocation:

The Pigouvian Solution aims to correct market failures and achieve an efficient allocation of
resources. By internalizing externalities through taxes or subsidies, the market can better reflect the
true social costs and benefits of economic activities.

4. Challenges and Considerations:

While the Pigouvian Solution is theoretically sound, its implementation may face challenges in
practice. Some of the considerations include:

- Measurement of Externalities: Accurately quantifying the external costs or benefits can be

challenging, making it difficult to determine the appropriate tax or subsidy rate.
- Political and Economic Realities: Political interests and lobbying may influence the
implementation of Pigouvian taxes and subsidies, potentially hindering their effectiveness.
- Administrative Costs: Enforcing Pigouvian policies and managing tax or subsidy programs can
be resource-intensive for the government.

In summary, the Pigouvian Solution offers a policy framework to address negative externalities
through taxes and positive externalities through subsidies, aiming to achieve a more socially optimal
allocation of resources. However, successful implementation requires careful consideration of the
specific externalities involved and the challenges that may arise in practice.

Topic No. 4: Coase's Theorem and Its Critique

Coase's theorem is a proposition in economics, formulated by British economist Ronald Coase in his
paper "The Problem of Social Cost" published in 1960. The theorem challenges the traditional view
that government intervention is always necessary to address externalities and suggests that under
certain conditions, private parties can resolve externalities without government intervention. Let's
explore Coase's theorem and its critique:

1. Coase's Theorem:
Coase's theorem asserts that if property rights are well-defined, transaction costs are low, and there
is perfect information, then private bargaining between affected parties can lead to an efficient
resolution of externalities. In other words, if individuals can negotiate and freely trade rights to the
externalities, they will do so in a way that maximizes overall welfare regardless of initial property
rights assignments.

2. The Coase Theorem in Action:

Imagine a scenario where a factory emits pollution that harms neighboring farmers' crops. According
to Coase's theorem, if property rights are clearly defined, for example, if the farmers have the right
to clean air, and transaction costs are low, the factory and farmers can negotiate a mutually
beneficial agreement. The factory could compensate the farmers for the damage caused by the
pollution, or the farmers might agree to accept some level of pollution in exchange for
compensation.

The outcome of the negotiation will depend on factors like the cost of reducing pollution for the
factory and the value of crop damages for the farmers. If the negotiation is successful, an efficient
allocation of resources can be achieved without any need for government intervention.

3. Critique of Coase's Theorem:

While Coase's theorem presents an intriguing perspective on resolving externalities, it has faced
several critiques and limitations:

- Transaction Costs: One of the main criticisms is that in reality, transaction costs are not
always negligible. The cost of negotiating, reaching agreements, and monitoring compliance
can be substantial, making private bargaining impractical or inefficient in many situations.
- Incomplete Information: Perfect information, as assumed in the theorem, is rarely present in
real-world scenarios. Incomplete information can lead to difficulties in accurately assessing
the costs and benefits of externalities, making efficient bargaining challenging.
- Bargaining Power Imbalance: Private negotiations may not always lead to fair outcomes,
especially when there is an imbalance of bargaining power between parties. The party with
more resources or influence may exploit the situation, leading to suboptimal results.
- Multiple Parties and Free-Riding: In cases where multiple parties are affected by an
externality, coordinating negotiations among all parties can be complex. Additionally, some
parties may choose to free-ride on the negotiations and benefits achieved by others.
- Public Goods and Externalities: Coase's theorem assumes that externalities can be fully
internalized through private bargaining. However, in the presence of public goods or
situations where externalities affect a large group or society as a whole, private bargaining
might not be sufficient.
- Time and Uncertainty: Externalities can have long-term impacts, and future conditions might
be uncertain. Private agreements may not adequately address these temporal and uncertain
aspects.

4. Coasian Bargaining and Coasean Solutions:

The process of private negotiation and bargaining to resolve externalities is sometimes referred to as
"Coasian bargaining." Solutions to externalities achieved through such private negotiations are often
called "Coasean solutions."

In summary, Coase's theorem suggests that under certain conditions, private parties can resolve
externalities through bargaining without government intervention. However, the theorem's
assumptions of low transaction costs and perfect information may not hold in real-world situations,
leading to critiques and limitations. While Coasian bargaining can be effective in some cases,
government intervention remains essential in many situations to address externalities and achieve
socially optimal outcomes.

Topic No. 5: Buchanan's Theory

James M. Buchanan was an American economist and one of the pioneers of public choice theory, for
which he was awarded the Nobel Memorial Prize in Economic Sciences in 1986. Buchanan's work
focused on public finance, political economy, and the analysis of decision-making in the public
sector. Let's delve into the key aspects of Buchanan's theory:

1. Public Choice Theory:

Buchanan's most significant contribution to economics is the development of public choice theory.
Public choice theory applies economic analysis to the study of political decision-making and public
sector activities. It treats politicians, bureaucrats, and voters as self-interested individuals who seek
to maximize their utility or interests, just like economic agents in the private sector.

2. Rational Choice and Public Decisions:

Buchanan emphasized the importance of rational choice in understanding public decisions.
According to his theory, individuals in the public sector make decisions based on their self-interest
and utility maximization. They weigh the costs and benefits of different options and choose the one
that best aligns with their objectives.

3. Rent-Seeking and Special Interest Groups:

Buchanan's work explored the concept of rent-seeking, which refers to the pursuit of wealth or
resources through political means rather than productive activities. He highlighted how special
interest groups often try to influence public policies to gain economic advantages, subsidies, or
protective regulations that benefit them at the expense of the broader society.

4. Constitutional Economics:
Another significant aspect of Buchanan's theory is constitutional economics. He argued that the
design and rules of political institutions significantly influence policy outcomes. Buchanan advocated
for constitutional arrangements that limit the scope and power of government, with clear rules and
protections for individual rights and property rights.

5. Limits of Government Intervention:

Buchanan was critical of excessive government intervention and argued for limiting the size and
scope of government activities. He believed that a constrained government, guided by a well-
designed constitutional framework, would lead to more efficient and responsible governance.

6. Public Finance and Fiscal Policy:

Buchanan's research in public finance also examined fiscal policy and the impact of taxation on
economic behavior. He analyzed the effects of various tax structures and the role of government in
providing public goods and services.

7. Methodological Individualism:
Buchanan's approach to economics was influenced by methodological individualism, which
emphasizes understanding economic and social phenomena through the actions and interactions of
individual agents. He applied this perspective to analyze the behavior of voters, politicians, and
bureaucrats.
8. Subjectivity of Value:
Buchanan also acknowledged the subjectivity of value, recognizing that different individuals have
different preferences and that societal preferences are not necessarily the sum of individual
preferences.

In summary, James M. Buchanan's theory, particularly his contributions to public choice theory and
constitutional economics, has significantly influenced the understanding of political decision-making
and the role of government in economic affairs. His work challenged the assumptions of benevolent
government and emphasized the importance of rational choice and individual self-interest in shaping
public policies and governance.

Topic No. 6: Pigouvian vs. Coasian Solution

Both the Pigouvian and Coasian solutions are approaches to address externalities and correct market
failures caused by spillover effects. However, they differ in their methods and assumptions. Let's
explore the differences between the Pigouvian and Coasian solutions:

1. Pigouvian Solution:
The Pigouvian solution is named after economist Arthur C. Pigou and involves government
intervention to internalize external costs or benefits. The key features of the Pigouvian solution are
as follows:

- Government Intervention: In the Pigouvian approach, the government intervenes in the

market by imposing taxes or providing subsidies to adjust the private costs or benefits of an
activity to reflect the true social costs or benefits.
- Pigouvian Tax: When a negative externality exists (e.g., pollution), the government imposes
a tax on the party responsible for generating the externality. The tax is equal to the value of
the external cost per unit of output, incentivizing the producer to reduce their pollution
levels.
- Pigouvian Subsidy: In the case of positive externalities (e.g., education), the government may
provide subsidies to encourage the production or consumption of the beneficial activity.
- Efficiency Focus: The Pigouvian solution aims to achieve economic efficiency by aligning
private incentives with social welfare, ensuring that those who create externalities bear the
cost or receive compensation for the benefits they generate.

2. Coasian Solution:
The Coasian solution is based on the work of economist Ronald Coase and proposes that private
parties can negotiate and reach agreements to internalize externalities without government
intervention. The key features of the Coasian solution are as follows:
 - Private Bargaining: According to Coase's theorem, if property rights are well-defined and
transaction costs are low, private parties can negotiate and bargain to achieve an efficient
outcome regarding externalities.
- Property Rights: The assignment of property rights is crucial in the Coasian approach. When
property rights are well-defined, the affected parties can negotiate and trade those rights to
resolve externalities.
- Efficiency through Bargaining: The Coasian solution relies on the idea that parties affected
by externalities can negotiate the allocation of resources to maximize their utility, resulting
in an efficient outcome.
- Voluntary Agreements: The agreements reached through Coasian bargaining are voluntary,
and the outcomes depend on the bargaining power and preferences of the involved parties.

3. Key Differences:
The primary differences between the Pigouvian and Coasian solutions are as follows:

- Government Intervention: The Pigouvian solution involves government intervention through

taxes or subsidies to correct externalities, while the Coasian solution relies on private
bargaining without government interference.
- Focus on Property Rights: The Coasian solution emphasizes the importance of well-defined
property rights as a basis for private negotiations, while the Pigouvian solution does not
specifically address property rights.
- Transaction Costs: The Coasian solution assumes low transaction costs for private bargaining
to occur effectively, while the Pigouvian solution does not rely on such assumptions.
- Voluntary vs. Imposed Agreements: The Coasian solution generates voluntary agreements
between parties, whereas the Pigouvian solution involves the imposition of taxes or
subsidies by the government.

In summary, the Pigouvian solution involves government intervention through taxes and subsidies to
internalize externalities and achieve efficient outcomes. On the other hand, the Coasian solution
suggests that private parties can negotiate and resolve externalities through voluntary agreements,
assuming well-defined property rights and low transaction costs. Both approaches have their
strengths and weaknesses, and the choice between them depends on the specific characteristics of
the externality and the feasibility of private bargaining.

Topic No. 7: Detrimental Externality

A detrimental externality, also known as a negative externality, occurs when an economic activity
imposes costs or negative effects on third parties who are not involved in the transaction. In other
words, it is a spillover effect that harms individuals or society as a whole without compensation.
Detrimental externalities lead to a divergence between private costs/benefits and social
costs/benefits, resulting in market failure and suboptimal resource allocation. Let's explore the
concept of detrimental externality in more detail:
1. Characteristics of Detrimental Externality:
Detrimental externalities exhibit the following characteristics:

- Uncompensated Impact: The costs imposed by the externality are not compensated by those
responsible for generating the externality. The affected parties bear the negative
consequences without receiving any benefits.
- Third-Party Effects: Detrimental externalities affect individuals or parties who are not
directly involved in the economic activity causing the externality. These third parties may
include neighboring residents, other businesses, or the environment.
- Overproduction/Overconsumption: In the presence of a detrimental externality, the market
may produce or consume more of the activity than is socially optimal. For example, a factory
might produce more pollution than is ideal for the overall welfare of the community.

2. Examples of Detrimental Externalities:

Several real-world examples illustrate detrimental externalities:

- Air Pollution: Factories emitting pollutants into the air can lead to health issues and
environmental damage for nearby residents and ecosystems.
- Traffic Congestion: An increase in the number of vehicles on the road can result in traffic
congestion, causing delays and inconvenience for commuters.
- Noise Pollution: Loud industrial or commercial activities can disturb the peace and well-
being of residents in the surrounding area.
- Secondhand Smoke: Smoking in public places can harm non-smokers who involuntarily
inhale the smoke.
- Deforestation: Clearing forests for agricultural or development purposes can lead to loss of
biodiversity and disrupt ecological balances.

3. Market Failure and Detrimental Externalities:

Detrimental externalities give rise to market failure because private individuals or firms do not take
into account the full social cost of their actions. The private market, driven by self-interest, may
overproduce goods or services that generate negative externalities, resulting in inefficient resource
allocation.

4. Addressing Detrimental Externalities:

There are various approaches to addressing detrimental externalities and correcting market failure:

- Pigouvian Taxes: Governments can impose taxes on activities that generate negative
externalities, internalizing the external costs and providing disincentives for excessive
production or consumption.
- Regulations: Governments may implement regulations and standards to limit the negative
impacts of certain activities. For example, emission standards can be imposed on polluting
industries to reduce their harmful effects.
- Cap-and-Trade Systems: Cap-and-trade systems set a limit (cap) on the total allowable
pollution and allow firms to trade emission permits. This approach incentivizes businesses to
reduce emissions efficiently.
 - Coasean Bargaining: Private parties can negotiate and reach agreements to mitigate
detrimental externalities, as suggested by Coase's theorem. However, the success of this
approach depends on low transaction costs and well-defined property rights.
- Subsidies for Alternatives: Governments can provide subsidies or incentives to promote
cleaner and less harmful alternatives to activities that produce detrimental externalities. For
instance, subsidies for renewable energy sources can reduce reliance on polluting fuels.

In summary, a detrimental externality occurs when an economic activity imposes costs on third
parties without compensation, leading to market failure and inefficiency. Addressing detrimental
externalities requires various policy tools, such as Pigouvian taxes, regulations, cap-and-trade
systems, and Coasean bargaining, to align private incentives with social welfare and achieve a more
efficient allocation of resources.

Topic No. 8: Non-Convexities in the Production Set

In economics, the production set refers to the set of all feasible combinations of inputs that a firm
can use to produce goods or services. A production set is considered convex when it exhibits certain
properties, but in some cases, production sets may be non-convex. Let's explore the concept of non-
convexities in the production set:

1. Convex Production Set:

A convex production set is characterized by the following properties:

- Increasing Returns to Scale: When the scale of production increases (i.e., all inputs are
increased proportionally), the output also increases at an increasing rate.
- Decreasing Marginal Returns: The additional output gained from each additional unit of
input decreases as more of that input is used while holding other inputs constant.
- Technical Efficiency: A convex production set implies that it is technically efficient to produce
any output level within the set. There are no wasted or unutilized resources.
- Convex Combinations: For any two feasible production points within the set, all
combinations of these points are also feasible. In other words, any weighted average of two
feasible outputs is also feasible.

2. Non-Convexities in the Production Set:

Non-convexities occur when the properties of a convex production set are violated. This means that
the production set may have areas where one or more of the above properties do not hold.

- Discontinuities: Non-convexities can lead to discontinuities in the production set. Certain

input levels may not lead to any output, resulting in "gaps" or "holes" in the set of feasible
production combinations.
 - Multiple Optimal Solutions: In non-convex settings, there may be multiple optimal solutions
for producing a particular output level. This can make it challenging to determine the most
efficient production method.
- Increasing and Decreasing Returns Mix: A production set might exhibit a mix of increasing
and decreasing returns to scale at different output levels. This can lead to irregular shapes in
the production set.

3. Causes of Non-Convexities:
Several factors can lead to non-convexities in the production set:

- Technological Constraints: Certain production technologies may have limitations or

irregularities that result in non-convexities.
- Discrete Production Choices: When production requires discrete choices, such as using
specific machines or technology, non-convexities can arise.
- Fixed Input Requirements: If certain inputs are only available in fixed quantities, the
production set may become non-convex.

4. Implications of Non-Convexities:
Non-convexities in the production set can have several implications:

- Multiple Equilibria: Non-convexities can lead to multiple equilibria, where a firm may
produce the same output level using different combinations of inputs.
- Existence of Local Minima and Maxima: In non-convex settings, production functions may
have local minima and maxima, making it challenging to find the global optimum.
- Efficiency Challenges: Non-convexities can complicate the task of optimizing production
processes and achieving allocative efficiency.

5. Key features of the Curve Drawn Non-convexities production set:

Two axes: each axis represents a good that a country produces, such as capital goods and consumer
goods.
One curve: A curve showing all possible combinations that can be produced given the current stock
of capital, labor, natural resources, and technology. A straight line represents constant opportunity
costs, and a bowed out line represents increasing opportunity costs.
6. Addressing Non-Convexities:
Dealing with non-convexities can be challenging, and finding efficient solutions may require
advanced mathematical techniques. In some cases, introducing new technologies, modifying input
requirements, or adjusting production processes may help reduce or eliminate non-convexities.

In summary, non-convexities in the production set refer to situations where the typical properties of
a convex production set, such as increasing returns to scale and technical efficiency, do not hold.
Non-convexities can complicate production optimization and may lead to multiple optimal solutions
and efficiency challenges. Addressing non-convexities may require adjustments to production
processes or the introduction of new technologies.