Alex Robson wrote:
>I have been having a running argument with someone about externalities.
>My argument was that, even if Coasian bargaining were to take place, the
>externality doesn't go away - it still exists [in the sense that one
>person's action directly enters the utility function of the other person]
>- but that it's just no longer Pareto-relevant.
>The other person has been arguing that, once Coasian bargaining has taken
>place, the externality *no longer exists*. ...
I recall getting stuck in this same debate before. My habit was the same
as yours. It seems to be a theorist/policy person difference.
Policy people say that there is this presumption out there that an
externality implies a market failure, which justifies government intervention.
So they do not want the word associated with situations where intervention
is probably just justified.
To a theorist, it makes little sense to define words in terms of whether
there is a market failure, for the simple reason that whether there is a
market failure is a complex feature of a larger context. You instead want
common words to describe simple local features. You want to be able to
talk about the major features of an economic situation without having to
analyze it in enough detail to figure out if there is a market failure.
Robin Hanson [EMAIL PROTECTED] http://hanson.gmu.edu
Asst. Prof. Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030-4444
703-993-2326 FAX: 703-993-2323
