General

Re: Positive Externalities in Microeconomics

Wheylous — Mon, 03 Sep 2012 00:45:43 GMT

Relevant to externalities:

http://direct.mises.org/journals/jls/7_1/7_1_1.pdf

Block shreds numerous externality arguments related to roads.

Re: Positive Externalities in Microeconomics

TC7wLTq — Sun, 02 Sep 2012 23:53:33 GMT

"Perhaps the terms need to be specified futher. The product is the defense of them both, and they cannot collectively cooperate, and I assume that it benefits them $X and $Y individually."

Are you saying that the $10 security service specifies security for two properties?

Also, yeah, I headed off to sleep. Didn't realize it was getting so late.

Re: Positive Externalities in Microeconomics

RobinHood — Sun, 02 Sep 2012 11:03:34 GMT

Perhaps the terms need to be specified futher. The product is the defense of them both, and they cannot collectively cooperate, and I assume that it benefits them $X and $Y individually.

Thus the optimal decision to buy the product is if $X + $Y > $CoP.

So a situation where $X=$7, $Y=$7 and $CoP=$10, will be misallocated, as a purchase is justified, but will not happen.

A purchase will only happen if it is justified by either individual: if $X > $CoP or if $Y > $CoP. So, if those both are not true, and $X + $Y > $CoP is true, there is a misallocation.

If Y really valued it enough to pay for it, he would approach X and offer to chip in.

Re: Positive Externalities in Microeconomics

Collectivism_is_Slavery — Sun, 02 Sep 2012 10:46:06 GMT

I probably should go to sleep now. Continue this discussion later?

Re: Positive Externalities in Microeconomics

Collectivism_is_Slavery — Sun, 02 Sep 2012 10:30:59 GMT

Perhaps the terms need to be specified futher. The product is the defense of them both, and they cannot collectively cooperate, and I assume that it benefits them $X and $Y individually.

Thus the optimal decision to buy the product is if $X + $Y > $CoP.

So a situation where $X=$7, $Y=$7 and $CoP=$10, will be misallocated, as a purchase is justified, but will not happen.

A purchase will only happen if it is justified by either individual: if $X > $CoP or if $Y > $CoP. So, if those both are not true, and $X + $Y > $CoP is true, there is a misallocation.

Re: Positive Externalities in Microeconomics

TC7wLTq — Sun, 02 Sep 2012 10:20:39 GMT

"To clarify, this is equivelant to one month of Security Service? You aren't introducing variable A?"

Yes, unless you want it to be something else. Just concretizing the example here.

"I'm pretty sure S=X here (they're next to each other on the keyboard)."

Yes. $X not $S. Will edit.

"My claim is that misallocation would happen if these three conditions are met

$X < Cost, $Y < Cost, Cost <$X + $Y

For example if $X = 7 and $Y = 7, and $CoP = $10 the product will not be bought, and this is a misalocation."

The product will not be bought, but how is it a misallocation?

Re: Positive Externalities in Microeconomics

Collectivism_is_Slavery — Sun, 02 Sep 2012 10:12:12 GMT

"A month of Security Service"

To clarify, this is equivelant to one month of Security Service? You aren't introducing variable A?

"$S and/or $Y >$CoP."

I'm pretty sure S=X here (they're next to each other on the keyboard).

My claim is that misallocation would happen if these three conditions are met

$X < Cost, $Y < Cost, Cost <$X + $Y

For example if $X = 7 and $Y = 7, and $SoP = $10 the product will not be bought, and this is a misalocation.

Re: Positive Externalities in Microeconomics

TC7wLTq — Sun, 02 Sep 2012 10:05:46 GMT

"But I'm not directly comparing the individual's subjective preferences, only whether they would purchase an item. Surely you don't deny that if Able would pay $100, and the price of the service is $10, Able will buy it? Similar calculations are valid for Baker. And we can combine them to share the situation.

For example, using your numbers, if Able (max price for an item $100) and Baker (max price for an item $200) could buy two items for $250, they would do so, correct?"

Yes. So let's go ahead and put it in the context of positive externalities for a Private Defense Agency (as we were discussing earlier).

$X is the price, (not the value) that Able is willing to pay for a product and SY is the price (but again, not the value) that Baker is willing to pay.

Let's say $Cost of Product (A month of Security Service) is $10.

Yes, they will both purchase the security service. However, it is not true that the product will be bought if $X + $Y > $CoP. This is only true if $X and/or $Y >$CoP.

For instance, if $X = $7 and $Y = 7, then SX+$Y = $14 which is > than $CoP. But the product will not be purchased in that case.

Re: Positive Externalities in Microeconomics

Collectivism_is_Slavery — Sun, 02 Sep 2012 09:56:48 GMT

"So they are theoretically invalid"

But I'm not directly comparing the individual's subjective preferences, only whether they would purchase an item. Surely you don't deny that if Able would pay $100, and the price of the service is $10, Able will buy it? Similar calculations are valid for Baker. And we can combine them to share the situation.

For example, using your numbers, if Able (max price for an item $100) and Baker (max price for an item $200) could buy two items for $250, they would do so, correct?

Re: Positive Externalities in Microeconomics

TC7wLTq — Sun, 02 Sep 2012 09:50:49 GMT

"The value figure I'm using is simply the maximum price the individual is willing to pay for the product. "

Tha'ts the thing. The maximum price an individual is willing to pay for some good or service is not a measure of the subjective value that individual holds for the same. So they are theoretically invalid.

So if Able would pay $100 for a $10 service while Baker would pay $200, this does not necessarily mean that Baker values it more.

Re: Positive Externalities in Microeconomics

Collectivism_is_Slavery — Sun, 02 Sep 2012 09:42:04 GMT

The value figure I'm using is simply the maximum price the individual is willing to pay for the product. That does not involve subjectivity in the calculations. It is difficult to ascertain those values in practice, but are they theoretically invalid? By that measurement we can also make interpersonal calculations.

Re: Positive Externalities in Microeconomics

TC7wLTq — Sun, 02 Sep 2012 09:35:08 GMT

You cannot express the value of buying a product to an individual in dollars. Since we can't measure value (since it is subjective), we cannot make interpersonal "utility" calculations either.

Positive Externalities in Microeconomics

Collectivism_is_Slavery — Sun, 02 Sep 2012 09:24:32 GMT

Friedrich Hayek once wrote that he wanted to "... avoid giving the impression that I generally reject the mathematical method in economics. I regard it as indeed the great advantage of the mathematical technique that it allows us to describe, by algebraic equations, the general character of a pattern even where we are ignorant of the numerical values determining its particular manifestation."

I realize the many flaws and impracticalities in applying the following mathematica model to the real world, but ignoring those:

If the value of buying some product to an individual is, expressed in dollars, $X,

And the value of that first individual purchasing the product to a second individual is, expressed in dollars, $Y,

Assuming that the second individual refuses to involve himself in the contract, then the product will be bought whenever the product is $X > $Cost of Product.

But assuming the second individual does involve himself, and both are rational, then the product will be bought whenever $X + $Y >$Cost of Product.

Correct? Do positive externalities in microeconomic theory only exist if one individual isn't acting rationally?