Ax murdering and wash your hands after using the toilet: a contrite/confused economist, March 2004.
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Some of the classic readings on externality theory can be found on my externality literature web page
Dan Bromley has recommend some others, they are listed below.
"Good to see you are flushing away confusion." Charlie Kolstad, March 2004
"A nice piece of work. Thanks for letting me in on it. I note that you did not comment on the Cornes and Sandler approach to externalities, which follows on the Meade and Arrow approaches (especially the latter). See their book, The Theory of Externalities, Public Goods and Club Goods.
Here is a thought: if you fail to wash your hands after using the toilet but do so after committing an ax murder, does that make your behavior irrational? An external effect or an externality"
Ed Barbier, April 2004.
"I love it! In fact, I'm planning to use it as an outside reading for my environmental courses. I do have two comments to share. First, you often use the first person throughout the paper. Given that you are an economist who has thought long and hard about this issue, it's very likely that if you were to become an ax-murdering economist you would fully internalize the external costs of your actions, including an estimate of the total cost of the pain and suffering that you would be inflicting on your victim(s) loved ones (as they pick up the pieces, so to speak). So, you might want to get away from the first person. (By the way, I don't think you include loved ones' pain and suffering as a component of the external costs. You need to do this explicitly).
Second, and more importantly, you are looking at this issue from a purely static perspective. It is a well-known result (so well-known in fact that I have no idea who first proposed it) that if you allow ax murderers to take bribes you will, over time, induce more people to pick up the ax than would be socially optimal. Heck, if I know that I can get bribes from potential victims I might as well carry an ax in my backpack everywhere I go - one never knows when spare change will be needed. So, I guess we have the equivalent of the "polluter pays principle" (i.e., one of the reasons we make polluters pay is because if victims are required to offer bribes an excessive number of polluters would locate near the victims who are paying). In this case it's "the ax murderer pays principle". But then you're back to having to impose some kind of tax on the ax murderer.
Thanks for sharing this with me. It has given me a good laugh".
Arthur Caplan, April 2004
I responded: I will think about your static point. Why doesn't your point also hold in a static world. We need to distinguish between the case where the "potential" ax murderer really enjoys ax murdering, wants to cause pain and suffering, and those who are just trying to make a buck.
In a world of real ax murderers, dynamic or static, I am not sure there will be too many murders from an efficiency perspective if one can bribe. On the other hand, if some who threaten would not really do it, there is an informational problem. Is Arthur the real thing or just out to make some money? Now we have a problem of asymmetric information.
Arthur responded: "It would be interesting to see if there are any additional responses on this point. One thing to keep in mind about the real vs. potential issue. If I'm a potential victim (i.e., there is a guy wielding an ax before me) I doubt I'd have the nerve to try and distinguish on the spot if he was the real thing. Assuming most victims would respond this way (i.e., cower in the face of their own impending slaughter), you get the problem of too many bribes being taken.
This said, when I was a Peace Corps Volunteer back in the late 80's, I was held up in Zimbabwe one night by a guy wielding what they called a "Panga", which is a very large knife used to harvest sugar cane. I was with some other volunteers and travelers whom I had just met that afternoon and we were returning from a restaurant fairly late that night. I could sense that the guy with the Panga really did not intend to use it. He just wanted our money. Sensing this, I took out my wallet and said that he could have most of the money. I needed just enough to be able to afford the train fare back to my home village in Botswana. I must have been talking fairly urgently and with some sense of determination. He snatched what I had in my hand, took what he could get from everyone else and then vanished. Interestingly enough, as I reflect on this experience now, perhaps this wasn't an externality according to your definition. The mugger was definitely made better off by taking the bribe and although I was not better off from having to have experienced the mugging, he may have been made better off than I was made worse off (meaning, I guess, that he could have redistributed back to me some of what I had given him to the point were we both might have been made better off). How so? Well, I still had all my limbs (which I was very relieved about) and I felt a bit heroic, having stood my ground and ensured that I had enough money to catch the next train out of town. Kind of like that positive externality situation that you mention in one of your footnotes. "
Dan Bromley, April 2004 wrote
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