Wednesday, January 20, 2010

I'm as clueless as Paul Krugman

Nice little story about Pigou.

8 comments:

Andrew said...

I liked the rabbits example...

Robert said...

It seems that by preserving rabbits on our own property, we could be incidentally overpopulating surrounding landowners... but that seems more appropriate to a Coase example of trampling cows.

Stephanie Beebe said...

The examples Pigou provides of "incidental disservices" do not seem as severe as the negative externalities we encounter today, such as pollution in environmental economic analysis. Maybe at the commencement of the roarin' 20s Pigou did not think industrialism would devastate the future environment as much as it has?

Chas said...

It seems as if Pigou's example of rabbits may be a case where markets would develop on their own without intervention in the form of a pigouvian tax. The neighbor whose land is being overrun could approach the neighbor causing the problem and discuss a way to solve the problem with open market negotiations. Pigou's idea works when dealing with externalities that effect large groups of people, however, on such a small scale, Coase's idea of letting a market develop seems more practical and applicable.

Beth Brantley said...

I agreee with Chas that Pigouvian intervention would not be necessary. Government intervention or a tax would really only be necessary if this was a common problem on many farms. The neighbor would resort to many other options before he would seek government intervention, anywhere from keeping the rabbits to discussing the problem with his neighbor to even selling them.

Pearson Nibley said...

The rabbit example for negative externalities is certainly a strange one for Pigou to use. It is different right away from the cow example because it seems unrealistic to ever be able to keep the rabbits you target for game on your land on the first place, whereas cows are much easier to contain. It is also an unusual example because the low transaction costs to settle the externality and Pigou's landlord-tenant scenario seem to possibly suggest that a Coasean-style resolution could be reached where the parties settle the externality on their own.

Aparajita said...

Implicit in the example of "incidental disservices" are assumptions of definition of property rights and two part interaction. I am not sure if this would work if there was no relation between the two parties of if there were more than two parties involved. Market would not develope if the above conditions do not hold. Definition of property rights seems key in this scenario. The situation presented in the Pigou examples seems almost like Coases's theorem?

Ned said...

I think that the rabbit example is not that far fetched, considering the problems rabbits were causing in Australia at the time. They were introduced there as a game and food source, but quickly turned into terrible pests. Government intervention didn't take place until 1950 (though no one at this point wanted to protect the animals) when they introduced myxoma, a blood-borne disease, to the rabbit population. I think that it's hard to allow a market to develop for controlling invasive species because their damage can become very severe, very fast. Kudzu, zebra muscles, and the potential introduction of sumino oysters in the Chesapeake are all invasive species that cause more damage than benefit and require some sort of legal regulation.