Externalities and Efficiency Crucially, an externality impacts a third party; i.e. somebody who is not a participant in the activity that produces the external cost or benefit
Externalities and Efficiency Crucially, an externality impacts a third party; i.e. somebody who is not a participant in the activity that produces the external cost or benefit
Externalities and Efficiency Externalities cause Pareto inefficiency; typically too much scarce resource is allocated to an activity which causes a negative externality too little resource is allocated to an activity which causes a positive externality
Externalities and Efficiency Externalities cause Pareto inefficiency; typically – too much scarce resource is allocated to an activity which causes a negative externality – too little resource is allocated to an activity which causes a positive externality
Externalities and Property rights An externality is viewed as a purely public commodity a commodity is purely public if it is consumed by everyone (nonexcludability), and everybody consumes the entire amount of the commodity (nonrivalry in consumption) E.g. a broadcast television program
Externalities and Property Rights An externality is viewed as a purely public commodity. A commodity is purely public if – it is consumed by everyone (nonexcludability), and – everybody consumes the entire amount of the commodity (nonrivalry in consumption). E.g. a broadcast television program
Consumption Externality Pareto efficient amount of smoke Inefficient equilibrium with negative externality Property rights and price mechanism Quasi-linear utility and the Coase theorem(科斯定理)
Consumption Externality Pareto efficient amount of smoke Inefficient equilibrium with negative externality Property rights and price mechanism Quasi-linear utility and the Coase theorem (科斯定理)
Consumption Externality Consider two agents a and b, and two commodities, money and smoke Both smoke and money are goods for Agent A Money is a good and smoke is a bad for Agent B Smoke is a purely public commodity
Consider two agents, A and B, and two commodities, money and smoke. Both smoke and money are goods for Agent A. Money is a good and smoke is a bad for Agent B. Smoke is a purely public commodity. Consumption Externality