ECON-221 Lecture Notes - Lecture 23: Coase Theorem, Externality
Document Summary
Externality that operates through prices rather than resources. Many ppl move to town, which drives prices for the houses up. A third party that wants to buy the house later is hurt by p. e. Externality that exists, but consequence of a marginal change in activity is. We must examine total costs and benefits rather than marginal effects. One more person using bandwidth on the internet. One more person attending a concert or sporting event (10k ppl matters tho) Externalities often arise b/c of a lack of clearly demand property rights. Provides exclusive right of ownership that allows for the use of property. Creates incentive to maintain, protect, and conserve property, as well as listen to the wishes of others. Incentive to maintain: keep the vehicle safe and reliable. Incentive to protect: lock your doors. Incentive to conserve: extend vehicle life, drive less. Incentive to trade with others: you can voluntarily trade for something better in the market.
