2008_02_12_Notes

2008_02_12_Notes - UP FRONT Reading for next time Perman et...

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UP FRONT, 2-12-08 Reading for next time: Perman et al. 165-181 (of which 165-177 is mostly background). Outline for Today 1) Rival, non-excludable goods: Tragedy of the commons, continued 2) Externalities defined 3) Efficient quantities of externalities in two simple cases 4) Property rights as a way of addressing to externalities
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Rival, non-excludable goods: The tragedy of the commons Other examples? What can one try to do in the case of an overexploited rival, non-excludable good?
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Externalities Externality: definition in two parts: 1. Occurs when the production or consumption decision of one agent affects the production or utility of another agent in an unintended way. 2. Without compensation from producer of external effect to affected party. Notes: 1. Synonyms of “externality”: “external good or bad” “external effect” 2. Externalities are often non-rival and non- excludable, making them public goods and public bads.
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The Efficient Quantity of a Consumption Activity that Produces a Negative Externality (Saxophone playing)
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The Efficient Quantity of a Production Activity that Produces a Negative Externality (Widget production) MPC = Marginal Private Cost MEC = Marginal External Cost MSC = Marginal Social Cost = MPC + MEC
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“No “invisible hand” can be relied on to produce a good arrangement of the whole from a combination of separate treatment
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2008_02_12_Notes - UP FRONT Reading for next time Perman et...

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