Irrelevant externality angst

David D. Haddock ()

ICER Working Papers from ICER - International Centre for Economic Research

Abstract: Due to the high transaction cost that would be necessary for large numbers of people to negotiate with each other, even those who are usually sanguine about private markets become reserved when externalities affect large populations. The distinction between private and societal interest is well understood for pecuniary externalities, but neglect of Buchanan and Stubblebine’s article Externality has left the same distinction widely unrecognized for non-pecuniary ones. If only a few parties on either side experience a relevant externality private interactions can appropriately internalize costs and benefits across the entire population. Regardless of the perceptiveness of legal and cultural institutions in placing entitlements, and regardless of the level of transaction cost among the universe of the affected, a surprising number of externalities will readily fix themselves. The desirability of corrective intervention is much too easily conceded.

Pages: 31 pages
Date: 2003-08
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Persistent link: https://EconPapers.repec.org/RePEc:icr:wpicer:31-2003

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