ECON-2000 Lecture Notes - Lecture 17: Externality
Document Summary
Externalities often arise because of lack of clearly defined property rights. Provides exclusive right of ownership, allows for use and exchange of property. Provides incentive to maintain, protect, and conserve property as well as listen to the wishes of others. Incentives: to maintain: safe and reliable, to protect: locks, to conserve: extend life of property, to trade with others: you can voluntarily trade for something better. Excludable: good must be purchased before use. Rival: good cannot be enjoyed by more than one person at the same time. Private goods: both excludable and rival in consumption, most goods are private goods. Free-rider problem: someone has the ability to receive the benefit of a good without paying for it, ex: having a classmate do all the work in a group project. Cost-benefit analysis: process to determine if benefits of providing public good are greater than the costs.
