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Monday, February 04, 2002

Did a little reading on externalities before going to bed in response to Mr. Haney's post yesterday. I realized he knows more on the topic than I do, and that's good. I mentally went through what I studied on externalities in my Econ classes, and noted that it was only covered in my intro to micro class as a freshman back in 1980; neither my intermediate micro nor my doctoral micro theory class covered it. The intro class was pre-Reagan, so a lot of market-based solutions weren't in play back then. I remember that they have pollution-rights trading (sulfur dioxide being most prominent if memory serves) as an example of market-based pollution controls, but have only looked at this more as a layman than as a teacher or student. I cracked open my micro theory textbook [Jack Hirshleifer, “Price Theory and Applications 4th Edition” Prentice Hall 1988] and found this on Coase’s Theorem: "Regardless of the specific initial assignment of property rights, in market equilibrium the final outcome will be efficient- provided that the initial legal assignment is well defined and that transactions involving exchange rights are costless." Hirshleifer goes on to say "the thrust of Coase’s Theorem is that the Invisible Hand is much more effective than our above discussion of externalities may at first suggest.” Coase won the 1991 Nobel for his work, so he's got something going. Film at eleven, folks. There's too much to cover for a work-break blogging session.

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