Matt StegerAccounting 803Seminar 24 - Standard Setting: Economic Issues (Cont.)In the second part of Chapter 12, Scott presents the definitions of externality and free-riding, followed by a discussion about how adverse selection arises as the result of all inside information not being released into the market. He also discusses the implications of a lack of unanimity within an economic setting, how much information is enough, decentralized regulation as it relates to information, and a chapter conclusion.Scott begins by presenting the following definitions for externality and free-riding:“An externality is an action taken by a firm or individual that imposes costs or benefits on other firms or individuals for which the entity creating the externality is not charged or does not receive revenue. Free-ridingis the receipt by a firm or individual of a benefit form an externality” (Scott, 462).He then tells us that externalities and free-riding are motivating factors in regulation and that,
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