ECON 1B03 Lecture Notes - Lecture 11: Coase Theorem, List Of Universities In Canada, Externality
Externalities II
Positive Externalities
- Beefits ho go to people ho did’t partiipate i the arket trasatio
- Cosider a uiersity eduatio…
- Education benefits not only those who go to school; all of society benefits by having an
educated, more productive population
- The value of education to everyone, Marginal Social Benefit, is greater than just the private
benefit to those who receive education
- At Qe too little is produced
- We should be producing Q*
- If we are producing less than what the real equilibrium should be we get a DWL
- The government can internalize the externality by subsidizing the production of the good – get
firms to supply more
- In the case of education, the government does in fact subsidize Canadian universities so that
more programs and more facilities are available to accommodate even more students
Government
- Government action is not always necessary for positive or negative externalities
- The private sector can sometimes solve the problems of externalities on its own
- Examples include:
o Moral codes and sanctions (like boycotting pollution companies)
o Charities (like Greenpeace who protect whales)
o Contracts between parties
The Coase Theorem
- This is a proposition that if private parties can bargain without cost (or with very little cost)
over the allocation of resources, they can solve the externalities problems on their own (no
government intervention)
- However, property rights have to be well defined for bargaining work
- A property right: the exclusive right to determine how a resource is used, whether that resource
is owned by government or by individuals
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Be(cid:374)efits (cid:449)ho go to people (cid:449)ho did(cid:374)"t parti(cid:272)ipate i(cid:374) the (cid:373)arket tra(cid:374)sa(cid:272)tio(cid:374) Education benefits not only those who go to school; all of society benefits by having an educated, more productive population. The value of education to everyone, marginal social benefit, is greater than just the private benefit to those who receive education. If we are producing less than what the real equilibrium should be we get a dwl. The government can internalize the externality by subsidizing the production of the good get firms to supply more. In the case of education, the government does in fact subsidize canadian universities so that more programs and more facilities are available to accommodate even more students. Government action is not always necessary for positive or negative externalities. The private sector can sometimes solve the problems of externalities on its own. Examples include: moral codes and sanctions (like boycotting pollution companies, charities (like greenpeace who protect whales, contracts between parties.