Trade-Offs: An Introduction to Economic Reasoning and Social Issues, Second Edition Paperback - March 8, 2013 by Harold Winter

Author:Harold Winter [Winter, Harold]
Language: swe
Format: epub
Amazon: B010EUYY66
Publisher: University of Chicago Press
Published: 1605-03-15T00:00:00+00:00

6 Stop Bothering Me

A factory’s production process emits smoke pollution into the air. An oil tanker transports oil and, due to an accident, spills oil into the ocean and along the coast. Airports have takeoff and landing patterns that disturb neighboring residents. Secondhand smoke causes cancer in nonsmokers. People talk in movie theaters. Your roommate’s television is too loud. Students walk into the classroom late. This opening paragraph is starting to annoy you. Each of these situations provides an example of what economists refer to as a negative externality. Or more simply put: people hate to be bothered.

A negative externality is when an individual’s private action imposes a cost on another individual. For example, the owner of a factory may only be concerned with selfishly maximizing profit and not with the consequences of the pollution emitted into the air. Thus, private actions may impose social costs, and laws and regulations are often designed to control these costs. But the concept of a negative externality can be extremely broad, and what type of externalities deserve the attention of social regulators can be an intriguing question.

I often present my students with the following two scenarios and ask them whether, from a social policy perspective, the two differ. In the first scenario, it is two in the morning and your neighbors are having a loud party and the noise is keeping you from getting any sleep. In the second scenario, it is two in the morning and your neighbors are having a quiet party that is keeping you from getting any sleep because you are upset that you weren’t invited. In both scenarios, your neighbors are imposing a negative externality upon you by keeping you from sleeping. Do you believe there is a difference between the two settings?

When I pose that question to my students, they usually claim that there is a difference. In the first case, you are being physically bothered by an identifiable noise. If the party is loud, anyone can observe there is a possibility of an externality. It may be extremely difficult to determine the extent of the externality (in terms of a dollar equivalent), but designing a social policy to stop loud parties is certainly feasible. In the second case, the externality is not easily observed by others. Your hurt feelings can only be verified by you, and this provides a very difficult justification for social intervention. But from a theoretical perspective, I contend that there is little difference between the two settings. The externality of the ongoing party is that you can’t sleep. One is a physical externality, that is, the loud noise keeps you awake. The other is a psychic externality, that is, your hurt feelings keep you awake. The key point, however, is that in both cases you are being hurt.

For the most part, legal cases in which damages may be assessed deal with physical externalities. This makes good sense because physical damages are more likely to be measurable than are psychic damages. But psychic externalities motivate a lot of social policy.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.