Chapter 1: Some Difficulties in the Existing Theory of Externalities
1. Some diﬃculties in the existing theory of externalities This book carries a title, which may puzzle many readers. Public goods, redistribution, and rent seeking do not seem to be closely enough related to ﬁt together in one book. Further, public goods is a rather misleading name. I normally talk about externalities, rather than public goods. Externalities are the reason that we must have governments and in many cases they lead to discussion of speciﬁc government activities, which generate further externalities and hence require further governmental activity. Nevertheless, they are usually not discussed together, nor in general, are redistribution and rent seeking included under the same general heading. I hope to convince the reader that it is logical to talk about them in an integrated way. I shall, however, start with externalities without mentioning that the existence of poor people in the community was listed by Milton Friedman as generating something rather like an externality. That subject will be put oﬀ until we reach the redistribution part of the book where its connection with externalities will eventually be made clear. Further, the connection of both with rent seeking will be made clear. I therefore hope that the reader will be a little patient while I go through what he will probably think is a detour before reaching the main themes. What then is an ‘externality’? As the word implies it is something, which occurs as a sort of byproduct of any action. If I mow my lawn, the...
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