Thursday, January 19, 2012

Good sentences on externalities from Mike Kimel


"This issue of other people using one's property rights has long existed with physical property. If you're neighbor doesn't wish to keep the music or odor or pollution he produces on his property, which is usually the case, he exports onto other people's property. Causing an earthquake on someone else's property [a reference to recent events surrounding fracking] is not an issue of bargaining over conflicting property rights, its taking someone else's property rights away. Ditto placing toxic fumes on other people's land. Because the party producing those fumes only has the property rights to its own property, not to someone else's. If the music one neighbor produces crosses the boundary onto property someone else is paying for, the producer of that music is trespassing. Sure, to some degree, everyone produces externalities, but the question is, how big can the externalities be before they must be regulated?"

As I said in previous posts, questions of externalities are always questions about standing. Everyone has subjective values. What we identify as externalities and how we solve those externalities revolves around determination of which subjective values "count".

This is one of many reasons why I always feel like barfing every time I hear "free market economist" used as a synonym for "libertarian economist". It's quite easy to make the case that the "free market" solution to pollution would be to outlaw any and all actitivies that pollute, because they all violate property rights. Property rights should be sacrosanct in a market economy, so anyone that isn't in support of outlawing all pollution as a violation of property rights is really thumbing their nose at the market economy. Almost all of us choose to abandon "free market economics" interpreted this way. Instead, we like having states that give monopoly priveleges that allow polluters to impose some costs on other citizens. Libertarians love trampling over these rights, along with a lot of non-libertarians like me. Nobody is a "free market economist". At least in that interpretation of "rights" (which logically speaking is not all that crazy of an interpretation, despite its problems on a pragmatic level).

The point: (1.) all these things are crucially dependent on underlying understandings about rights and standing, and (2.) stop using the term "free market economist".


  1. Part 1
    This seems like a confusion to me. You're discussing political philosophy and economics in a very synonymous nature, and I think that is often where the confusions lie.

    I won't get into the purely economics considerations, instead I'll give you my own opinion from a private property perspective and assuming no State.

    First and foremost, visible externalities should be reconciled at the lowest possible level. What I mean by this is that individuals should be allowed to first establish agreements with regard to these externalities.

    Just to give an example, I currently live in an apartment located in a black ghetto in East Cleveland (I am the only white fellow in the building). You may say that I am stereotyping when I say that blacks tend to like their music to be played in a fashion that emphasizes frequencies below about 200Hz, but they do. In my apartment building there are personal agreements between neighbors that correspond to this type of pollution. I have verbal agreements with my neighbors to the left and right, as well as directly below to not engage in noisy behavior past certain hours or on certain dates, etc.

    Now, let's say that one of my neighbors completely disregards our verbal agreement and blasts his music at all hours of the night. Well, obviously there is no recourse that I can pursue directly and alone. So, I can then make agreements with other neighbors, many of whom are also afflicted with such pollution. Now, we probably cannot take any direct action, such as bombarding him with our music or similar actions, because we would not only be invading his peace and quiet, but also that of other residents. Probably the most we could do is to confront him as a group, but this isn't to be regarded as effortless, because we are social beings this effort can yield great results.

    Let's say that grouping together for a common cause does not work. The next course of action is to contact the owner of such property and to establish rules of conduct on such property. Obviously, if enough residents complain, then this gives great incentive to the property owner to satisfy his customers, thus he will establish rules of conduct that apply to all residents equally.

    Up to this point I have not brought up the idea of contract until I brought in the property owner. However, this is not to say that contracts cannot be crafted between the residents themselves, only that it is far less likely to happen that way given the circumstances. It is usually customary that a property owner will have a contract with those using his property, and many of these contracts stipulate the house rules, as well as pointing out that the house rules can change at any time and at the owner's discretion.

    Now, it should be obvious that the same dynamic can be found when it is only property owners involved, or any mixture of property owners and renters of property. The question isn't so much as to the agreements themselves, but rather it is who is to be the arbiter in the matter.....

  2. Part 2
    In my above example there is only passive arbitration until the point that we reach the property owner, at which point the offender can simply be evicted, excluded, etc. I like to call the position of the property owner the "hard arbiter" in this case, because he owns the property and thus has the ultimate say in the matter. However, this brings up the next problem, who is the "hard arbiter" in cases involving multiple property owners?

    I'll give two primary examples. The first is a case similar to that of the renters described above, in which there are multiple verbal agreements. As I said, these parties can come together in agreement against the offender and use passive arbitration to reach their ends. If this does not work, then they can move on to the next step (my second example) and contract with each other to form an association.

    Now, this might not seem to be very effective in your eyes, but I assure you that if enough surrounding property owners contract together against a polluter, then his life will surely not be merry. Just imagine if every property owner around you contracted with each other to outlaw loud noises or grilling of food during certain hours or under other stipulations, and you, the polluter, continued to pollute against the wishes of your neighbors. What do you do if the guy that owns the road is party to that contract, how do you get to work? What if the guy that owns the power plant agrees to the contract, how to you heat and cool your home? Etc, etc.

    Now the question comes who is the arbiter of the contracts? Judges, of course. But then comes the question of who is the arbiter of the judges? My answer would be those who engage into contract with such judge so as to make him their arbiter and/or those who the judges have contracted with to make that person their arbiter (and, so on).

    Externalities aren't something that cannot be solved by a libertarian doctrine, the difference lies in how these matters are solved. Libertarians prefer the anti-state approach as to the statist approach. Anti-statists pretty much reject the idea of tacit consent and do not agree with the idea that a monopolist State must exist to resolve differences, whereas statists prefer a monopoly State to act to resolve differences. In my opinion, the prime difference between the two ideas is whether agreements and contracts are arbitrated by parties by explicit authority, or whether agreements and contracts are arbitrated by implicit and/or tacit authority.

  3. Quick change of subject, but I didn't want this fresh video clip of Boudreaux blaming the world economic collapse on Fannie and Freddie to fly undeer the radar:

    and Joe Nocera demolishes it here:


    You know, this comment is an externality on the post about externalities...

    1. "You know, this comment is an externality on the post about externalities..."

      Indeed. However, DK is the final arbiter on that matter.

  4. One of the classics illuminating the argument that externalities are matters of standing is the famous dissent by William O. Douglas in Sierra Club v. Morton (just copy/pasta from Wikipedia):

    "The critical question of "standing" would be simplified and also put neatly in focus if we fashioned a federal rule that allowed environmental issues to be litigated before federal agencies or federal courts in the name of the inanimate object about to be despoiled, defaced, or invaded by roads and bulldozers and where injury is the subject of public outrage. Contemporary public concern for protecting nature's ecological equilibrium should lead to the conferral of standing upon environmental objects to sue for their own preservation. This suit would therefore be more properly labeled as Mineral King v. Morton. [...]


  5. Daniel, I believe that your conception of a "libertarian" is very narrow and often cringe worthy. I hate to get into labeling (you've spent many moons covering such issues), but often-classified 'libertarians' such as Loren Lomasky and Gerald Gaus discuss these very problems in detail, and Gaus especially makes room for a fundamental place for democracy. Maybe these philosophers are more "classically liberal" than libertarians (in which case I myself would fall more into the former camp). Lomasky brings up these points directly in Persons, Rights, and the Moral Community [1987], in discussing his conception of rights as noninterference: "In order for life to be possible, social determinations will have to be made concerning which causal effects will be deemed cases of (impermissible) interference." Lomasky [1987] at 103. His point is that a conception of rights does not interpret itself. There is room for disagreement, and social decisions must be made in order for individuals to live together (this is where I believe democracy comes into play, and one must have a normatively-meaningful conception of the democracy in order to fill out their political philosophy).


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