If this post is true (I suppose that they can tag isotopes of mercury and be reasonably sure of where it came from (?)) then it seems that the "we need a carbon tax to control global energy use" crowd needn't fight the carbon doubters anymore. Pretty much everyone agrees that atmospheric mercury is anthropocentric and potentially harmful to people. So we'll just get the Chinese to sign the ______ Protocol (please pick a pleasant location for the conference--maybe the tropics in winter). I'm sure they will.
Oh. Wait. Maybe they won't. Maybe the strategic/geopolitical dimension of carbon taxation is something that 99.9% of environmental economists are either oblivious or choose to ignore because it isn't in the model.
Note: the French still come out looking good here. Nuke plants still don't emit Hg.
Thursday, February 28, 2008
Monday, February 25, 2008
The Academy as Business
From Stanley Fish's article in the Times:
But in the academy there is no product except knowledge, and that may take decades to develop, if it develops at all. The concept of market share is inapposite; efficiency is not a goal; and there is no inventory to put on the shelves. Instead the norms are endless deliberations, explorations that may go nowhere, problems that only five people in the world even understand, lifetime employment that is not taken away even when nothing is achieved, expensively labor-intensive practices and no bottom line. What is an outsider to make of that?
http://fish.blogs.nytimes.com/2008/02/24/wanted-someone-who-knows-nothing-about-the-job/?8dpc
But in the academy there is no product except knowledge, and that may take decades to develop, if it develops at all. The concept of market share is inapposite; efficiency is not a goal; and there is no inventory to put on the shelves. Instead the norms are endless deliberations, explorations that may go nowhere, problems that only five people in the world even understand, lifetime employment that is not taken away even when nothing is achieved, expensively labor-intensive practices and no bottom line. What is an outsider to make of that?
http://fish.blogs.nytimes.com/2008/02/24/wanted-someone-who-knows-nothing-about-the-job/?8dpc
Monday, February 11, 2008
Book Review: A Demon of Our Own Design
Richard Bookstaber has been in some interesting places that have given him a sage perspective on financial markets and innovation: he watched the 1987 market crash from Morgan Stanley; joined Salomon Brothers for the high-flying early 1990s and stayed until the arb trading unit was shut down after the Citigroup merger; watched his fellow MIT grads (and Salomon colleagues) blow up LTCM from a front-row seat; and then he managed to work for "hedge funds" before Congress knew what they were. All those qualifications led Congress to ask him to testify about the currrent mortgage/credit mess last fall. Since he has spent a career trying to figure out what portfolios of derivatives mean in the real world, he seems like a good choice. He has no less than three basic observations about financial markets today.
1) Liqudity is the defining characteristic of financial markets and provides a pertinent contrast to other aset markets. Liquidity allows leverage, which has abetted recent financial crises. Traders leverage assets because they can and because they need to to make small-return bets worthwhile. But liquidity can disappear in a crisis, squeezing those in leveraged positions.
2) Financial derivatives are good insofar as they allow risk to be borne by those more willing to bear it. However, exotic derivatives create additional layers of complexity in financial markets. In concert with tight coupling resulting from leverage, this complexity can lead to instability. Bookstaber suggests that a less sophisticated market structure might be more robust in times of crisis--like a cockroach, which has a very coarsely evolved survival strategy.
3) Accounting practices are antiquated and cosntructed with illiquid markets in mind. Without sufficient statistics for the types of exposure, strategies, and positions that financial firms face, standard accounting practices are not useful in assessing risk. It should come as little wonder that firms like Enron and Tyco were able to manipulate accounting concepts in the context of far more dynamic strategies.
Bookstaber's background as a risk manager lends some interesting context to the above observations. Citing Knightian uncertainty, he emphasizes unknown risks as the primary blind spot of markets, in subtle contrast to Taleb's fat tail risks. While unforthcoming on how to deal with unknown risks (just as Taleb is coy about living with fat tails), this observation should catch the attention of any quantitative trader. The narrative is generally very good, but does lag in places. He is less windy than Taleb, but also takes time to relate personal stories, some of which are illuminating. On the whole an interesting read, and Wendy deserves credit for finding it.
1) Liqudity is the defining characteristic of financial markets and provides a pertinent contrast to other aset markets. Liquidity allows leverage, which has abetted recent financial crises. Traders leverage assets because they can and because they need to to make small-return bets worthwhile. But liquidity can disappear in a crisis, squeezing those in leveraged positions.
2) Financial derivatives are good insofar as they allow risk to be borne by those more willing to bear it. However, exotic derivatives create additional layers of complexity in financial markets. In concert with tight coupling resulting from leverage, this complexity can lead to instability. Bookstaber suggests that a less sophisticated market structure might be more robust in times of crisis--like a cockroach, which has a very coarsely evolved survival strategy.
3) Accounting practices are antiquated and cosntructed with illiquid markets in mind. Without sufficient statistics for the types of exposure, strategies, and positions that financial firms face, standard accounting practices are not useful in assessing risk. It should come as little wonder that firms like Enron and Tyco were able to manipulate accounting concepts in the context of far more dynamic strategies.
Bookstaber's background as a risk manager lends some interesting context to the above observations. Citing Knightian uncertainty, he emphasizes unknown risks as the primary blind spot of markets, in subtle contrast to Taleb's fat tail risks. While unforthcoming on how to deal with unknown risks (just as Taleb is coy about living with fat tails), this observation should catch the attention of any quantitative trader. The narrative is generally very good, but does lag in places. He is less windy than Taleb, but also takes time to relate personal stories, some of which are illuminating. On the whole an interesting read, and Wendy deserves credit for finding it.
Friday, February 8, 2008
What will liberals read?
Those readers who have a strong affinity for The New York Times might want to read this. It appears as though Schumpeter was right when he said, “Technology is not kind. It does not wait. It does not say please. It slams into existing systems… And often destroys them." Indeed. It is most likely to destroy those least equipped to adapt to it, even if they are staid and respected institutions that have henceforth generated something nearing $1b per year.
The best line in this by far is, "Now, normally, beating up on someone like this isn't very much fun. But we are talking about a profession that specializes in passing judgment, often snide, on everyone else. And so, onward..." How apropos in the case of the NYT.
And more...
The best line in this by far is, "Now, normally, beating up on someone like this isn't very much fun. But we are talking about a profession that specializes in passing judgment, often snide, on everyone else. And so, onward..." How apropos in the case of the NYT.
And more...
Thursday, February 7, 2008
Book Review: More Sex Is Safer Sex
Steven Landsburg’s contribution to the recent flood of pop economics books, More Sex Is Safer Sex, focuses attention on the concept of spillovers and endorses a strong application of cost-benefit analysis. Like other recent books in the genre (Stephen Levitt’s Freakonomics, Ian Ayres’ Supercrunchers, or Robert Frank’s The Economic Naturalist) it is quick reading, and while the reader may or may not agree with all Landsburg offers, he must surely agree that it is thought-provoking and entertaining. Drawing on material from his years as a columnist for Slate, Landsburg delivers a collection of antecdotes with poignant economic insights. This material would be very useful to anyone seeking to enliven an introductory economics class or a cocktail party.
The book begins with the titular chapter, claiming that if the pool of prospective sexual partners is larger, then all participants are less likely to contract an STD. Recreational sex is welfare-enhancing, and aside from the spillover of infection, Landsburg hypothesizes that more people would participate in it. In order to lure otherwise bashful prospective partners from the sidelines and increase the size of the pool, Landsburg suggests that used condoms should be exchangeable for a reward (this is because even at zero cost, a less than socially optimal number of condoms would be used). Thus more people have sex, reducing the chances of infection. But wait, doesn't condom use reduce the risk of infection? Presumably wider-spread condom use would also mitigate the risk of infection just as surely as lerger numbers of uninfected partners. It's also not clear to me that sexual pairings are random. In any event, sexual relationships are evidently a scale-free network, so it's not clear that adding a whole lot of nodes is the way to attack the problem of infection. It seems that attacking the hubs is the way to do it. Landsburg has clearly achieved his goal, since I had to understand his argument in order to come up with that.
Landsburg continues to sling economics curveballs throughout the book. A few examples give the spirit.
The book begins with the titular chapter, claiming that if the pool of prospective sexual partners is larger, then all participants are less likely to contract an STD. Recreational sex is welfare-enhancing, and aside from the spillover of infection, Landsburg hypothesizes that more people would participate in it. In order to lure otherwise bashful prospective partners from the sidelines and increase the size of the pool, Landsburg suggests that used condoms should be exchangeable for a reward (this is because even at zero cost, a less than socially optimal number of condoms would be used). Thus more people have sex, reducing the chances of infection. But wait, doesn't condom use reduce the risk of infection? Presumably wider-spread condom use would also mitigate the risk of infection just as surely as lerger numbers of uninfected partners. It's also not clear to me that sexual pairings are random. In any event, sexual relationships are evidently a scale-free network, so it's not clear that adding a whole lot of nodes is the way to attack the problem of infection. It seems that attacking the hubs is the way to do it. Landsburg has clearly achieved his goal, since I had to understand his argument in order to come up with that.
Landsburg continues to sling economics curveballs throughout the book. A few examples give the spirit.
- Underpopulation (not overpopulation) is the world's most pressing problem since people solve problems. With more of them, more problems will be solved. (Steve, did you know that only stupid people are breeding?)
- Juries should be paid for correct verdicts and fined for incorrect ones. SURPRISE! The legal system doesn't get the incentives right.
- As a miser, Scrooge was actually among the most generous of people by producing valuable goods and services but not consuming any--at least, until the end of The Christmas Carol. (This smells like pecuniary externalties to me.)
- People (except tycoons with potnetially endowment-changing contributions) should donate to a single charity rather than to multiple charities. Corrollary: Maimonides' Rule is a crock.
- Patents should be purchased by the government and held in the public domain. This rewards innovation and allows public use of knowledge.
All in all, it's a worthy collection of thoughts, logic, contrarianism, and jokes. Landsburg deserves a lot of credit for owning up to the internal conflicts between his fee market training (Chicago) and proclivity and his enthusiasm for selected government interventions (like the condom bounty) in economic life. One sidenote that comes up three or four times during the book: Landsburg has a hardon for Robert Frank of Cornell. Apparently the claim to be the top dog in pop economics is valuable. A cage match sounds like a good idea.
Thursday, January 31, 2008
Rare occurrence
Reading the new JEL that came in the mail yesterday and I happened upon a first (for me, at least). DiNardo ("Interesting Questions in Freakonomics"; a misleading title since he argues forcefully that there are less of these than one might think) rocks a double-footnote! That's right, kids, he footnotes footnote # 29 with footnote #30, which is an all-star move if you ask me.
This would be nothing more than a neat, unusual occurrence if the section (and the footnotes) weren't so good. DiNardo uses Freakonomics, and for those who've read it, it's preoccupation with correlation vs. causation, as a jumping-off point to discuss randomized controlled trials and the assumptions needed to assume that RCTs can give good estimates of a treatment effect: "...in an RCT, the answer should be insensitive to the addition of additional controls."
This is a recommended piece of work.
This would be nothing more than a neat, unusual occurrence if the section (and the footnotes) weren't so good. DiNardo uses Freakonomics, and for those who've read it, it's preoccupation with correlation vs. causation, as a jumping-off point to discuss randomized controlled trials and the assumptions needed to assume that RCTs can give good estimates of a treatment effect: "...in an RCT, the answer should be insensitive to the addition of additional controls."
This is a recommended piece of work.
Friday, January 25, 2008
Fed Uncertainty
The following is excerpted from John Mauldin's weekly newsletter, You can count on the blockheads in Congress to botch almost anything for political gain.
Continued
Continued
Good friend and fishing buddy David Kotok recently brought a very disturbing item to my attention, and feel I need to pass it on. Senator Chris Dodd, Democrat from Connecticut, he who aspires to be president, is seriously hampering the ability of the Fed to respond to the current crisis and threatening the independence of the Fed in the process, all for a little partisan gain. His fellow Democrats are going along with him.
Basically, there are two vacant seats on the Fed. President Bush has nominated two very qualified people with distinguished records and backgrounds who have hands-on experience in real-world banking, as opposed to being academicians. These are not political appointments, but serious economists.
Dodd refuses to allow these nominations, or any others, to move forward. Plus, Dodd has let it be known that he will not hold a confirmation vote on current Fed governor Randy Krozner, whose expertise is mortgage markets, when his term ends January 3.
Under current rules, since there are now just five Fed governors instead of the normal seven, you cannot have just three governors on a conference call, as that would be a violation of the public meeting rules, since three would constitute a quorum and potential majority. That clearly makes communication difficult. It also means that the current governors, who already have tight schedules, have to take on extra duties.
Why would Dodd do this? He has made it clear that he is not happy with Fed policy, as has his counterpart in the House, Barney Frank; so some of this is just personal pique. They want the Fed to respond to their political goals. But some of it is clearly partisan. If there is a Democratic president, they would be able to immediately nominate three new governors, and would not have to reconfirm Ben Bernanke as chairman, which means he would leave and the new president would appoint the chairman.
Dodd clearly wants a say in this, and wants a Fed that will pay attention to his politically driven needs. This would mean the Fed would be short-staffed for at least another 18 months, which is not a good thing. The Fed does more than just hold eight meetings and set monetary policy. They have real work that needs to get done.
Whoever the new president is, they will get to nominate who they like as governor terms come to an end. But to act as Dodd is currently doing threatens the independence of the Fed, which is a critical part of the economic world. You can criticize the Fed and their policies, and I often do, but every right-thinking person agrees that Fed policy should not be set in Congress and subject to political whim. The last time we had a Fed chairman who let politics suggest policy was William Miller under Jimmy Carter, and that did not turn out well.
Dodd is sending a message that is not appropriate. These should not be political appointments. These appointments have serious economic consequences. Shame on Dodd for holding hostage an economy which is in crisis for his own political advantage, and shame on a Democratic Senate leadership which goes along with him.
Tuesday, January 22, 2008
Is the Tail now Wagging the Dog?
And as economists, should we be happy with that?
The recent Fed auction had a clearing rate of 3.95% when the overnight rate was still at 4.5%: http://www.federalreserve.gov/newsevents/press/monetary/20080115a.htm
The Fed comes out this morning (1.22.08) and lowers the overnight rate to 3.5% stating a weakening economy (more likely just trying to stave off the negative bounce from the foreign markets): http://www.federalreserve.gov/newsevents/press/monetary/20080122b.htm
Are those rates coincidental, or is the Fed out-sourcing some rate setting power?
On one hand, as economists we have to side with any use of the market to gleam information. On another, the market is notoriously fueled by behavioral impulses. Though it isn't clear how exactly the Fed decided on the rate, my take is that the Fed shouldn't be taking so many hints from its auctions.
The recent Fed auction had a clearing rate of 3.95% when the overnight rate was still at 4.5%: http://www.federalreserve.gov/newsevents/press/monetary/20080115a.htm
The Fed comes out this morning (1.22.08) and lowers the overnight rate to 3.5% stating a weakening economy (more likely just trying to stave off the negative bounce from the foreign markets): http://www.federalreserve.gov/newsevents/press/monetary/20080122b.htm
Are those rates coincidental, or is the Fed out-sourcing some rate setting power?
On one hand, as economists we have to side with any use of the market to gleam information. On another, the market is notoriously fueled by behavioral impulses. Though it isn't clear how exactly the Fed decided on the rate, my take is that the Fed shouldn't be taking so many hints from its auctions.
Thursday, December 13, 2007
Fed Auctions
I think we all can accept why this happened: the Fed wanted to provide an opportunity for banks to get money at a rate lower than the 4.75 discount rate, possibly staving off worries on banks runs and generally providing some economic credit grease, if you will. What I think is interesting is to consider, is what information may be gained from the results. That is, assuming coalitions are not formed, what does it mean if the auctions result with the Fed lending out the first $20B at 4.25 or something drastically lower than 4.75 (and that is a big what if considering the banks may be able to turn around and sell the debt at least at 4.75)? What does it mean to place so much monetary policy power at the hands of the market? Could this result in a signal of how the market views the large scale growth of the global economy? I am not a macro-economist and am far from able to yet form a coherent post-worthy thought on this but hope these brief questions spur further discussions. Swing at will and lets get som discussion going as this is an opportune learning situation on many fronts.
Info from Fed: http://www.federalreserve.gov/monetarypolicy/files/TAFfaqs.pdf
For an old example of the Treasury's take on uniform price auctions, see: http://treas.gov/offices/domestic-finance/debt-management/auctions-study/upas2.pdf
Info from Fed: http://www.federalreserve.gov/monetarypolicy/files/TAFfaqs.pdf
For an old example of the Treasury's take on uniform price auctions, see: http://treas.gov/offices/domestic-finance/debt-management/auctions-study/upas2.pdf
Wednesday, December 12, 2007
Using Macros in STATA
If you are programming in Stata, or using macros for any reason, be careful when squaring.
Try the following if interested (commands in italics), though you can see the result:
gl check = -.01
di $check-.01
di $check^2
-.0001
di ($check)^2
.0001
This was done on Stata 8.2 but I also found this to issue on Stata 9.
Try the following if interested (commands in italics), though you can see the result:
gl check = -.01
di $check-.01
di $check^2
-.0001
di ($check)^2
.0001
This was done on Stata 8.2 but I also found this to issue on Stata 9.
Saturday, December 1, 2007
Tuesday, November 20, 2007
Explaining Quants' August Meltdown
This essay does a nice job of explaining what happened to quant funds in August and why some were crushed while others managed to survive.
Tuesday, November 13, 2007
Schumpeter on Academics
"The layman thinks he knows what a professor is. However, this term denotes a group of people who differ widely in type, function, and mentality. There is the academic administrator; the university politician; the teacher in the sense of a man who imparts current knowledge; the teacher in the sense of a man who imparts distinctive doctrines or methods; the scholar in the sense implied by 'learnedness'; the organizer of research; the research worker whose strong point is ideas; the research worker whose strong point is skillful technique, experimentation and its counterparts in the social sciences. And all of those--and others--are very different chaps and hardly ever fully understand and appreciate one another. Yet it takes all of them to make a modern university and it takes recognition of all these types and the way they cooperate or fail to cooperate in order to understand what a university is and how it works. And he who insists on merging them into a unitary professorial type and leaves it at that will obliterate not only secondary details but essentials."
Monday, November 12, 2007
Possible Classic Papers
Alchian, A. 1950. Uncertainty, Evolution and Economic Theory. JPE 58: 211-221.
Friedman, M., and Savage, L. J. The Utility Analysis of Choices Involving Risk. JPE 56(4): 279-304.
Friedman, M., and Savage, L. J. The Utility Analysis of Choices Involving Risk. JPE 56(4): 279-304.
Friday, October 12, 2007
Ig-Nobel
Would a physicist or chemist with work that spawned persistent criticisms about mishandling data win the Nobel Prize? For that matter, would one with even a glimmer of empirical doubt even make the short list? The obvious answer is no. The Peace Prize is a political prize just as global warming is a religious debate. The sold-out bluehairs in Oslo are clearly more interested in gestures and PR on this issue than they are in concrete, irrefutable advance. Just like the Academy in Los Angeles.
The question is not whether the Earth is getting warmer. It is, with little doubt. How much warmer, the extent and reversibility of humans' contribution, and the dynamics of change are all far murkier questions. Roughshod empirical work and calls for immediate action before such work can be performed are neither laudable nor excusable in fields other than "Peace."
Given that the Nobel Prize is considered the acme of the economics profession, the award of the Peace Prize to Albert should raise doubts about the objectivity of the selection process and the value of assiduous empirical detail to the committee. Presumably (hopefully) a different batch of bluehairs are responsible for evaluating work in other fields.
The question is not whether the Earth is getting warmer. It is, with little doubt. How much warmer, the extent and reversibility of humans' contribution, and the dynamics of change are all far murkier questions. Roughshod empirical work and calls for immediate action before such work can be performed are neither laudable nor excusable in fields other than "Peace."
Given that the Nobel Prize is considered the acme of the economics profession, the award of the Peace Prize to Albert should raise doubts about the objectivity of the selection process and the value of assiduous empirical detail to the committee. Presumably (hopefully) a different batch of bluehairs are responsible for evaluating work in other fields.
Friday, October 5, 2007
Picking Winners
My cerebral disdain for predictions does not diminish my personal fascination with them. In light of the impending big announcement, "the short list" has been hypothesized. It looks pretty safe to me--I would think all are locks for eventual recognition. However, others certainly are in the same category, and how they have been winnowed out in 2007 is unclear, even after taking the micro/macro pattern into account.
Tuesday, October 2, 2007
Polarizing Tails
Two popular books recently released to capture the minds of the next generation on the global warming issue have engendered a preposterously polarized debate, as the surprisingly similar amazon reviews here and here show. With entrenched convictions approaching religious ideologies, do any economists honestly believe that their study will make a difference?
Thursday, September 20, 2007
Behavioral Economics
Some of you may already be aware of this, but I hadn't heard the quote until I read an article in this month's JEP:
"I should have computed the historic covariances of the asset classes and drawn an efficient frontier. Instead...I split my contributions fifty-fifty between bonds and equities" -- Harry Markowitz. Yes, the one who won a Nobel for MPT. How cool is that? Makes me feel less bad about my own ad-hoc investment strategies.
I actually couldn't find that quote in the source given in this month's JEP, but typing "I split my contributions fifty-fifty" in google brings up a bunch of sources with different extended versions of the quotation.
"I should have computed the historic covariances of the asset classes and drawn an efficient frontier. Instead...I split my contributions fifty-fifty between bonds and equities" -- Harry Markowitz. Yes, the one who won a Nobel for MPT. How cool is that? Makes me feel less bad about my own ad-hoc investment strategies.
I actually couldn't find that quote in the source given in this month's JEP, but typing "I split my contributions fifty-fifty" in google brings up a bunch of sources with different extended versions of the quotation.
Wednesday, September 19, 2007
Sex and Externalities, Redux
Dave sent me an email yesterday, alerting me to the fact that Nerlove had added this article to his regular bulletin board. The link is to a short review on a book by Steven Landsburg. Notice that there is a link to the entire first chapter in the left-hand margin.
The first chapter weighs in (sort of) on a debate that sprung up long ago in the old Tim/Mike/Chad/Beat office on externalities. I argued that the government should subsidize consumer purchases of condoms since there was a consumer-to-consumer externality (I didn't call it that at the time; I lifted the "consumer-to-consumer" part from Just, Hueth, and Schmitz) that accrued to all sexually active people every time a single party used a condom.
An interesting counter argument was forwarded by Dave (others maybe, but I don't remember well) that because each participant in the sex market participated despite known risks and could effect their own risk through partner selection and use of a condom themselves, that there was no externality present. The idea here was that so long as participation was voluntary (the costs of participation and thus the external benefits from decreased disease-spreading were avoidable) an externality was not quite the right tag to place on the disease suppressing effects of condom usage.
At the time I didn't find this to be a compelling argument, but I turned to a few sources that gave weak support to Dave's claims. No source confronted the voluntary/unvoluntary nature of the external effects, but all of the examples I could root out of a good text seemed to implicitly support Dave's categorization.
The Landsburg argument does not resolve anything, per se. But he does use an externality argument to arrive at the conclusion that disease-free people should all have more sex. So that's pretty cool.
Dave and I have exchanged several emails filling out our positions. Let's continue this discussion using the comment section of this post.
Feel free to include your own definition of an externality. Here is the Just, Hueth, and Schmitz definition, for good measure:
"An externality is defined as the case where an action of one economic agent affects the utility or production possibilities of another in a way that is not reflected in the market-place. External effects are often classified into the effects of consumers on consumers, producers on producers, producers on consumers, and consumers on producers..."
The first chapter weighs in (sort of) on a debate that sprung up long ago in the old Tim/Mike/Chad/Beat office on externalities. I argued that the government should subsidize consumer purchases of condoms since there was a consumer-to-consumer externality (I didn't call it that at the time; I lifted the "consumer-to-consumer" part from Just, Hueth, and Schmitz) that accrued to all sexually active people every time a single party used a condom.
An interesting counter argument was forwarded by Dave (others maybe, but I don't remember well) that because each participant in the sex market participated despite known risks and could effect their own risk through partner selection and use of a condom themselves, that there was no externality present. The idea here was that so long as participation was voluntary (the costs of participation and thus the external benefits from decreased disease-spreading were avoidable) an externality was not quite the right tag to place on the disease suppressing effects of condom usage.
At the time I didn't find this to be a compelling argument, but I turned to a few sources that gave weak support to Dave's claims. No source confronted the voluntary/unvoluntary nature of the external effects, but all of the examples I could root out of a good text seemed to implicitly support Dave's categorization.
The Landsburg argument does not resolve anything, per se. But he does use an externality argument to arrive at the conclusion that disease-free people should all have more sex. So that's pretty cool.
Dave and I have exchanged several emails filling out our positions. Let's continue this discussion using the comment section of this post.
Feel free to include your own definition of an externality. Here is the Just, Hueth, and Schmitz definition, for good measure:
"An externality is defined as the case where an action of one economic agent affects the utility or production possibilities of another in a way that is not reflected in the market-place. External effects are often classified into the effects of consumers on consumers, producers on producers, producers on consumers, and consumers on producers..."
Thursday, September 13, 2007
Weak Property Rights = Pollution?
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