BUS 150 Module 3: Liberty and Externalities

liberty

every person is to be their own ruler - provided that they don’t interfere w/ the similar right of others (Milton Friedman)

essential freedoms

freedom to come and go, equality and justice before the law, secuirty of property, freedom of speech, freedom of conscience

Index of Economic Freedom

rule of law (property rights, gov. integrity, judicial effectiveness), government size (gov. spending, tax burden, fiscal health), regulatory efficiency (business freedom, labor freedom, monetary freedom), open markets (trade freedom, investment freedom, financial freedom)

externalities

occur when production or consumption of goods and services generate costs or benefits for others which are not reflected in the prices for the goods and services

positive externalities

benefits that are infeasible to charge to provide; society benefits from individual production or consumption of a good or service

negative externalities

costs that are infeasible to charge to not provide; society pays the cost for individual production or consumption of a good or service

Tragedy of the Commons

commons connotes a shared resource; original article by Garrett Hardin - focused on over-population of humans and family size, earth’s natural resources, welfare state. Against Hardin - Universal Declaration of Human Rights the family as the natural and fundamental unit of society; choice of family size must irrevocably rest w/ the family itself

governmental solutions to Tragedy of the Commons

privatization (e.g. Homestead Act in US, catch shares in Module 1); regulation (e.g. catch shares - hybrid: property rights, but limited by regulation each year; Endangered Species Act); internalizing externalities - users of resource pay for all consequences of its use (through taxation - e.g. gasoline tax covering roads and pollution)

Coase Theorem

if transaction costs of bargaining to resolve disputes are low, the initial allocation of property rights is immaterial to efficient re-allocation and resolution of externalities; gov. shouldn’t get involved and should instead let parties negotiate (Ronald Coase, Nobel Prize for Economics, 1991)

John Stuart Mill, On Liberty, 1859

self-protection is the only purpose for which it is acceptable to interfere with another’s liberty; individuals should be free to exercise sovereignty over their own self-interest as long as this pursuit of self-interest does not harm other people; individual is sovereign over 1. liberty of conscience 2. liberty of thought and feeling 3. guardian of their own health 4. liberty of opinion and sentiment

Wendell J. Brown, “Defining Liberty: An Analysis of its Three Elements”

Five Essential Freedoms; regarding the state, liberty is a political sense of direction, we could leave the processes of liberty alone and still have it; 1. What liberty seeks to accomplish 2. How to accomplish this, procedurally 3. Its underlying faiths

Meade and Cheung (Meade, 1952)

double apple farming and double bees, then both apples and honey are doubled; determining factor for outcomes is doubling of apples which feed the bees; apple farmer cannot charge for feeding bees, “unpaid factor”; suggests government taxation and/or subsidies

Meade and Cheung (Cheung, 1973)

effectively says Coase was correct - when transaction costs are low, the free market will figure this out on its own; farmers and beekeepers have engaged in private contractual arrangements for some time

Tragedy of the Commons - Kessler Syndrome

as more things are placed in space, greater chance of space objects (e.g. satellites) colliding, in turn produce more objects in space, ‘accelerating’ chances of further collisions near orbit to earth

externalities - elk herds movement through front range Colorado

more people are developing properties due to liberty/freedom (plus economic wealth); elk migrate further east, encroach on cattle farms which rely on grasslands to feed cattle; cattle farmers bear negative externality; solution: PERC worked w/ all involved to compensate cattle farmers for loss grasslands due to elk grazing their lands