ECN 321 Lecture Notes - Lecture 4: Overfishing, Decision-Making, State Ownership

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In some less developed countries rocks are normally removed from land without any challenge by land owners even if the rocks did not interfere with their daily living. Clearly, the land owners do not value the rock because a rational trader would be asking for its value. Rationality in this context only makes sense if the framework exists for an individual to be able to identify and realize gains from trade. As these economies develop, research and exchange mechanism make transactions easier to execute; what was once a valueless resource may become valuable. For example, rocks could some day have worth in less developed countries, like the worth we in developed countries have grown accustomed to. From a legal and economic perspective, we cannot punish someone who has acquired information that could potentially increase their gains from trade. The establishment and maintenance of the research and exchange mechanisms will entail transaction costs.

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