Negative Externalities and the Coase Theorem

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In economic activity, there are sometimes 'externalities' or spillover effects to other people not involved in the original exchange. Positive externalities result in beneficial outcomes for others, but negative externalities impose costs on others. Prof. Sean Mullholland addresses a classic example of a negative externality, pollution, and describes three possible solutions for the problem: taxation, government regulation, and property rights. The first two options are difficult to monitor and may create perverse incentives. A better solution to overcome the externality is property rights, as described by Ronald Coase. As long as property rights are well-defined, divisible, and defendable, parties can negotiate to reduce the impact of the pollution.

Category:

Education

Tags:

• negative
• positive
• externality
• externalities
• Ronald Coase
• property
• rights
• Pigou
• taxation
• regulation
• pollution
• economics
• environment
• learn liberty
• video
• freedom

[asimpleenigma]

Where is the model giving the property rights to the fish?

[UncleIrv]

@bsabruzzo

No offense, but your explanation does not identify the right issue.

The key of the "property rights" solution has nothing to do with assuming people are "good" or "bad." The key is the optimization of SELF INTEREST.

(1) With the STATIST solution (force) depends on a third party (bureaucrat) whose own self interest is not directly tied to the outcome.

(2) With the property rights solution, the parties are MOTIVATED BY THEIR OWN SELF INTEREST toward the best outcome.

[ProfMike789]

Moral of the story: The Coase Theorem is SO RIDICULOUS, they had to buy a commercial to get non-economists to believe it.

[KittenKoder]

@bannanafruitsalad How is that corruption? There is no law broken, all rights were honored and respected, and the economy still flourishes.

[EvolutionaryThinker]

@asimpleenigma When fish can recognize the property of others then they have developed the right to property.

[bannanafruitsalad]

it seems like this solution would only bring about corruption.

i.e. the fisherman decides to let the farmer use as much fertilizer as he wants, provided the farmer pays the fisherman enough.

[52000rightwing]

I'm gonna dominate my property law final.

[13lackLight]

can someone show me how this deals with pollution and air? I mean nobody owns air

[shogu666]

@bsabruzzo @oil

You still dont get it. Where are money to be made there will always be control if not by state then by different means.

Are you really that naive to believe that state is the only option available for private interests to gain control over or destroy weaker ???

[shogu666]

@bsabruzzo "How about the 100+ years the US didn't have heafty regulations where it went from 3rd world nation to super power?"

US had plenty of regulation long before FED especially the tariffs. You are uneducated.

"hey play by gov't's rules, not a free market."

Again if you buy a gun and use it, you are the problem not the gun.

"If this is your idea of a "good job", Europe can keep it."

Governments sucks but they aren't a problem they are a result of underlaying mechanism.

[therichardking4242]

Stupid example farmer and fisherman. Try a lead refinery and parents of young children. When the negative externality is destroyed lives its not worth it!