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Markets internalizing externalities

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Bogdan Posted: Mon, Oct 1 2007 12:24 PM

Does anyone know any good references on the topic of free markets internalizing externalities ? Thank you.

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Rothbard wrote: "Law, Property Rights, and Air Pollution". Strict Liability and Homesteading play a big role in this work. This might be a good place to start.

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Bogdan replied on Tue, Oct 2 2007 11:10 PM

I know Rothbard's essay, but I was looking for something more neoclassical/coasian. 

When talking with somebody really serious about externalities, it's really hard to argue by stating from that start that no such economic category really exists, as the Austrian framework does.

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I am not sure what you'll find by the Neoclassicals on the matter. Even the Chicagoans are sheepish on the issue of externalities. Have you tried using Coase's work on the matter?

 

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Bogdan replied on Fri, Oct 12 2007 7:44 AM

Inquisitor:
I am not sure what you'll find by the Neoclassicals on the matter. Even the Chicagoans are sheepish on the issue of externalities. Have you tried using Coase's work on the matter?

No, I haven't but there is a great deal of important works on the subject, for example :

Ronal Coase's famous article, "The Lighthouse in Economics” in the Journal of Law and Economics;

Steven N.S. Cheung's “The Fable of the Bees: An Economic Investigation” in the Journal of Law and Economics, which is a critique of J.E. Meade's article, “External Economies and Diseconomies in a Competitive Situation” also in the Economic Journal;

 

 

 

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TokyoTom replied on Sat, Oct 13 2007 4:54 AM

Mises specifically refers to externalities.  I have a post up on his thoughts and another post with links to other Austrians on environmental matters at my blog.

The key point is that every externality is an opportunity and not a zero-sum game.  Both sides win if information and transaction costs are reduced so that deals can be entered between parties with different interests.

"The first principle is that you must not fool yourself - and you are the easiest person to fool."

-- Richard Feynman

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 walter block has lots of excellent critique on Coase does he not?

Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid

Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring

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WmBGreene replied on Tue, Oct 23 2007 8:32 PM

Bogdan:

Does anyone know any good references on the topic of free markets internalizing externalities ? Thank you.

 

 

By definition aren't externalities the result of treating the commons as unowned and essentially valueless unless and until labor has been applied to bring it into the system of private property? 

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Grant replied on Wed, Oct 24 2007 3:10 AM

WmBGreene:
By definition aren't externalities the result of treating the commons as unowned and essentially valueless unless and until labor has been applied to bring it into the system of private property?

Externalities, as they are often known in mainstream economics, are unfunded benefits or penalties received by a party not taking part in the transaction which produces those benefits or penalties. They are public "goods" or "bads". Since the (dis)utility of public goods (and bads) is obviously completely subjective, its pretty much impossible to expect government to measure all the externalities, let alone deal with them all in the manner some economists like Stiglitz propose.

Coase showed how markets internalize externalities, provided the transaction cost is suffeciently low, but physical externalities can of course be delt with by property rights. I tend to think externalities should be thought of as entrepreneurial opportunities.

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