In general, firms which generate externalities, either positive or negative, can't be expected produce allocatively efficient levels of output regardless of industry structure. Without externalities we know that imperfectly competitive industries underproduce, while perfectly competitive industries are allocatively efficient.

   In the case of firms which generate externalities, negative externalities typically lead all types of firms to overproduce relative to allocative efficiency, but imperfect competitors come closer to allocative efficiency than perfect competitors because of their reduced output.

   Again, a warning, this doesn't mean that as long a polluters are imperfectly competitive there will be no environmental problems, far from it. It only means that things might be even worse if, all else being equal, they were perfectly competitive.

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