ECON 367 Lecture Notes - Lecture 10: Pigovian Tax, Overproduction, Externality
Document Summary
Econ 367: economic analysis of law (lecture 10) Mec= a cost that ) don"t have to pay for, it"s levied on someone else. Self-interested people (cid:523)so, everyone, according to econ(cid:524) don"t care about the mec. You can force someone to internalize the externality: if they are liable, responsible for the nuisance. This is called a pigouvian tax (i. e. imposing a carbon tax to get companies to pollute less) If unattended, negative externalities lead to overuse = tragedy of the commons from overproduction. Overproduction: when actual private level > socially optimal (allocatively efficient) level. The 4th cow (steer) makes the rancher (r) , the farmer (f) willing to pay up to. They agree on ; we are back at the socially optimal level of 3 steer. * it doesn"t have to be , that particular number just chosen for convenience of the example. > )n reality, f & r"s situation is a bilateral monopoly problem.
