Determination of the optimal externality: Efficiency versus equity

The environmental economic problem of determining the optimal level of externality is analysed in this paper within a non-traditional framework. Thus, this classic problem is formulated as a bi-criteria model defined in the private benefits–external costs space. This change of scope, together with some results in multicriteria analysis, leads to new interpretations and non-conventional predictions with respect to the conclusions derived from the Pigovian and Coasian traditions.