PHIL 322 Lecture Notes - Lecture 2: Externality
Document Summary
Interest in having property builds interest in property rights. Negative externality - productive activity negatively impacting livelihood. Mc = mb :costs for producing equals profits of doing so. According to coase, then, in the absence of transaction and bargaining costs, parties to activities with negative externalities will agree to some efficient allocation of resources regardless of the initial distribution of property rights. If markets are to approach efficient outcomes in which people are compensated for externalities, people must have extensive rights to make agreements. Full capitalist ownership rights are conducive to efficiency (mutual benefit) To the extent that one party does not know what he is buying, we can no longer suppose that market exchanges are truly mutually beneficial. Coercive offer: an offer that exploits one"s bargaining power and simply cannot be refused. Overall effect of markets, far from radically decreasing options, is to increase them, providing a greater range of choice.