Chapter 10 - Externalities & property rights

Coase theorem

: if at no cost people can negotiate the purchase and sale of the right to perform activities that cause externalities, they can always arrive at efficient solutions to the problems caused by externalities.

efficient remedy

In many cases, a(n) is to define and enforce rights to the use of valuable property.

Tragedy

of the commons: tendency for a resource that has no price to be used until its marginal benefit falls to zero.

Positional externality

occurs when an increase in one person's performance reduces the expected reward of another's in situations in which reward depends on relative performance.

Positional arms

control agreement: agreement in which contestants attempt to limit mutually offsetting investments in performance enhancement.

External cost = negative externality

cost of an activity that falls on people other than those who pursue the activity

External benefit = positive externality

benefit of an activity received by people other than those who pursue the activity

Externality

external cost or benefit of an activity

Coase theorem

if at no cost people can negotiate the purchase and sale of the right to perform activities that cause externalities, they can always arrive at efficient solutions to the problems caused by externalities

Tragedy of the commons

tendency for a resource that has no price to be used until its marginal benefit falls to zero

Positional arms race

series of mutually offsetting investments in performance enhancement that is stimulated by a positional externality

Positional arms control agreement

agreement in which contestants attempt to limit mutually offsetting investments in performance enhancement

External cost = negative externality

Cost of an activity that falls on people other than those who pursue the activity

External benefit = positive externality

Benefit of an activity received by people other than those who pursue the activity

Externality

External cost or benefit of an activity

Coase theorem

If at no cost people can negotiate the purchase and sale of the right to perform activities that cause externalities, they can always arrive at efficient solutions to the problems caused by externalities

Tragedy of the commons

Tendency for a resource that has no price to be used until its marginal benefit falls to zero

Positional externality

Positional externality occurs when an increase in one person's performance reduces the expected reward of another's in situations in which reward depends on relative performance

Positional arms race

Series of mutually offsetting investments in performance enhancement that is stimulated by a positional externality

Positional arms control agreement

Agreement in which contestants attempt to limit mutually offsetting investments in performance enhancement