Comments (5)

• P.M.Lawrence

  Well, there is at least one material error here. Governments are not the sole source of externalities, though they may well be the only material sources of new externalities in the modern age with all its statism.

  The thing is, some externalities arise spontaneously and some were created by other groups or even powerful individuals. One area I'm particularly familiar with is a market imperfection in the employment area. These days there is a government created externality from the interaction of social security and taxes (in many countries, anyway). Only, this was the result of a government intervention getting rid of a spontaneous externality, "vagrancy costs".

  You can see a mild example of vagrancy costs in action described by Trollope in Australia. In one of his minor novels he describes how land owning squatters had an incentive to pay off wandering swagmen by giving them supplies or light work, since otherwise they risked mysterious fires around their properties.

  Another soultion, of course, is to band together to contain this problem. But that banding together is precisely the beginning of a central state, not imposed but sought "freely" as a least worst option.

  Over and above all that, merely removing government externalities is not a good way to reduce market imperfections. If nothing else, some interventions are compounding for other failures (possibly caused by yet other previous inteventions, in a tangled way). Simply to remove this or that does not necessarily lead to greater all up efficiency, let alone equity; it might be undoing a Pigovian solution to something else.

  And, just as there used to be rent seekers trying to get governments to intervene for nominally good reasons but with incidental benefits to them, so also these days there are people seeking priorities in government withdrawals that incidentally favour them. That is why there is so much pro-corporate stuff emerging these days, to the detriment of individuals. Where socialists mistakenly tried to alleviate corporatism with a mixed economy, their mistake has an opposite: to suppose that corporatism itself is the way to go, rather than putting direct ownership back into individuals' hands. We no more "own" what is done in our name than the peoples of the "people's republics" did.
  

  Published: March 15, 2005 11:56 PM

• tz

  The paper often seems to beg the question.

  The phrase "where property rights are available to the bargaining parties" appears throughout at key moments. Are the instutitions that define and enforce such rights "governmental" or not?

  And most externality problems usually arise where there is some longstanding property that has been assumed to be but not defined as a right (a majestic view, clean and clear air, quiet, etc.).

  If these rights were obvious and defined a priori, there would be no argument - there would either be or not be a tresspass. (E.g. either the existing (non)users of the air own it, or the user who "improves" it by turning it into a free dump does).

  "Government" then must define the right - either a judge, legislature, or dictator. It would be no different about a dispute in contract language or a weight or measure.

  "where property rights are available" means the problem is one of enforcement, not of definition.

  There is a difference between bad government intervention (that decides based on lobbyists, not on natural law), and one where it - in whatever form including simple social custom - does its proper role in setting up rules for all to abide by.

  It doesn't help to get the problem wrong on either side - we have pollution so must ban automobiles and industry is just as bad as saying we can solve pollution problems without defining who owns the polluted thing (or assume we already know when we don't).
  

  Published: March 16, 2005 8:52 AM

• P.M.Lawrence

  That policing/enforcement issue raises a philosophical and a practical problem with property type Coasian solutions to externalities.

  Wherever a government provides the structure, or takes over an existing structure to maintain the state's monopoly of force, there is a cost to providing it. As that has to be funded separately there is a new extarnality that cannot be handled in a Coasian way without undoing the state itself.

  That's the philosophical problem. The practical problem is that the cost are material and may even exceed the externality costs, as with slave patrols in societies where people can be property.
  

  Published: March 17, 2005 12:59 AM

• N. Joseph Potts

  Is a paragraph or more missing from this paper? Near the beginning, a paragraph ends, "the paper is organized as follows." "The next section of the paper . . ."

  Huh? What about the FIRST section or sections before that NEXT one?

  Published: March 22, 2005 7:50 PM

• Steve

  I can't help but notice that most of the citations in the working paper are from about 50 to 60 years ago. I think the case is being stretched beyond belief here. For example, even the Clinton Administration noted that simply because there is an issue with an externality doesn't automatically mean that government solutions are the correct solutions.

  Published: March 23, 2005 4:15 PM