Chapter 5: Urban Externalities: Funeral and Burial Markets
INTRODUCTION Traditional economic theory gives a central role to ‘economies of large scale production’ or ‘natural monopoly,’ somehow defined, as a possible rationale for government regulation. Such economies were at the root of Chadwick’s advocacy of franchise bidding for railways as shown in Chapter 4. While a separate tradition relating to other explanations for market failure always existed, that tradition swirled around philosophical theories of externalities in a Benthamite world or governmental interventions in the Pigouvian tax-bounty framework.1 In modern times, the Coasian revolution relating to social costs, and its offshoots in the works of such economists as Alchian and Demsetz (1972), Demsetz (1968; 2011), and Williamson (1979; 1985), have raised the possibility of market solutions (as opposed to government solutions) to so-called externality problems. (For example, private solutions to providing information may function when asymmetric information problems arise in private markets.) While for the most part contemporary economists have embraced a ‘comparative institutional framework’ for evaluating so-called market failures, scientific analyses evaluating particular failures often give way to political exigencies, and not to sound, sometimes even to unsound, economic logic or empirical support. Environmental externalities, treatment of endangered species, cable regulation, and legal protection of the medical and legal professions are perhaps good examples of how self-interested politicians react to particular interests. Chadwick, as we argued in Chapter 4, observed these impediments to maximum social welfare before the middle of the nineteenth century. Lacking faith in government’s ability to make positive contributions to social welfare, Chadwick proposed that...
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