Externalities, Explained (When Is a Potato Chip Not Just a Potato Chip?)
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- เผยแพร่เมื่อ 19 ธ.ค. 2012
- If Art sells potato chips to Betty, both Art and Betty are happy with the transaction. Betty has chips, and Art has been paid for them. If Betty eats her chips loudly and it irritates Carl, then Carl bears a cost because of Art and Betty's transaction. Carl didn't have anything to do with the sale of the chips, but now he has to listen to them crunching. The cost Carl bears is called an externality. It is a cost that affects someone outside of the transaction. Prof. Michael Munger explains how externalities can arise and some options for resolving them.
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Dilbert tries to internalize the cost of a coworker's externalities: bit.ly/STjPZv
A textbook introduction to Coasian bargaining: bit.ly/URbYIe
Article in The Freeman explains how common law can solve externalities: bit.ly/T7rHTT
A Property and Environmental Research Center piece on Coase and Pigou: bit.ly/T7rKPy
An ethics blogger's argument in favor of Pigovian taxes: bit.ly/UE6IqK
These LearnLiberty videos are absolutely freaking fantastic. Thank you ever so much for making them.
Excellent job, Professor Munger! Thanks for joining the LL team!
This video was much more whimsical and kept my attention better than some of the others. Great work and keep them coming!
Best example of an externality: When a coworker pops popcorn in the breakroom and the whole office has to smell it.
Voicing your complaint to the person causing the problem is another right. Exercising one's rights doesn't have to resort to extreme measures like limiting who one is physically around or where they physically live. The rights to communicate, discuss, and even negotiate are great blessings.
Great video!
Best video made by Learn Liberty. Funny and educational lol
Actually there was because there was "A side effect or consequence of an industrial or commercial activity that affects other parties without this being reflected in the cost...". Betty eating loudly is a cost in terms of the lost value of Carl's productivity which is not reflected in the cost of the chips.
nicely played.
I'll bet this guy's classes are a lot of fun!
Thanks so much!! I finally get it!
I wish my economics professor was more like you!
Great Video
Now I finally know, the fuck is an externality.
I love you Mike Munger.
Trying to fix it with taxes is still a hell of a lot better than trying to fix it with price floors and quotas though.
Setting arbitrary tax rates on things you don't like for numbers you can't calculate is pretty shaky ground for "better". It is in effect a sin tax and to make things worse, it's a tax one something when there is no viable replacement readily available.
Great video. I would also emphasize "the reciprocal nature of the potato chip problem" (to borrow Prof Coase's own formulation), i.e. Carl is just as much to blame for the munching as Betty is because he could've worn his Beats noise-reducing headsets or move to another part of the room!
Yes, if he's sitting at the back of a class he may as well put a headset on so he doesn't hear the lecturer or just leave the room. The blame is equal on both sides... Never thought of that.
I love this!!!!!
Did this video just completely reduce externalities to some guy being annoyed?
It is not reducing externalities by providing a silly example of an externality. In this case the externality is sound pollution
If there's no one there to hear the tree fall in the forest, it's because your taxes were paid up, thereby internalizing that externality 😜
@1:30 he explicitly did NOT reduce, go be a little punk somewhere else on the internet
Carl is just jealous! I also noticed that Betty lets the chips fall where they may.
You forgot a 3rd solution: Carl could pay either one of them to stop. If Carl could freely offer such there is no externality. In theory you can also pay your neighbor to not pollute so much, etc.
The "actual cost" in this this case would be the same as the "social cost", which is basically the private cost plus the external cost? I wasn't too sure on the verbiage.
KUDOS FOR OPENING A BAG OF THE BEST POTATO CHIP EVER!! UTZ ORIGINAL!!
seriously funny and educational.
Agreed!
This is how I feel when I watch a pringles commercial. Everyone is crunching so loudly & smiling.
I want to add to the discussion by bring in the concept of individual rights. People have the right to life, liberty, property, and the pursuit of happiness. Their is no right to people eating softly, but you do have the right to choose who you want to eat in your store or in your house as part of the right to property. You also have the right to move to another location where you will not be bothered and perhaps not buy from people who allow loud eaters around their store because right to life.
Europe is full of externalities, taxes on everything or just invent taxes I remember on left side of window car , is full of stickers that represents each tax you pay just in a car
I laughed so damn hard at Betty's face!
did that carbon tax just pop into my head? ...
If the neighbors can prove damages, they can sue. In those cases the price is defined by a selection of peers, and often to the point of being punitive exaggerations of the actual damages.
for the idea of externalities is to be accepted, we need a more substantive conception of what it means to "harm" someone. The idea that Carl is harmed by having to listen to Betty eat her chips is utter nonsense. He has the choice to be offended or not.
How does one create fairness with legalized theft? (Taxes)
I've noticed that the externalities argument is usually made by people who don't even understand how the price system is supposed to coordinate the economy in the first place.
The very concept of "externalities" seems like an open excuse for any law or tax some politician wants to pass. which is probably what the guy who came up with the idea wanted.
Art is in no way responsible for what Betty does with the chips.
Yes but we're better off keeping the arguments simple. Notice How learnliberty generally prefers to keep their videos within a 5 minute maximum frame. It's not because that's how long it takes to make the best, fullest argument, but because they're anticipating the attention span of a viewer is probably roughly that much.
True dat
They don't have to be perfect. Approximations of the extrenalities are much better than nothing. Such taxes can also replace other taxes on working and exchanging, what we want more of. I also don't see how private dealings to internalize the costs are necessarily precluded by Pigouvian taxes both in magnitude and situationally.
I voted for Mike Munger when he ran for Governer of NC back in '06. He didn't win :(
What's the tax on war?
Dear LearnLiberty,
Due to the large amount of controversy behind the topic, can you please make a video responding to the strictness of the new gun laws that are about to be passed in 2013. I really want to hear your alternative/opinion to/on the situation. Thank you.
Sincerely,
MB
I have to wonder how you would account for the externality of pollution. You'd have a hard time bargaining health away, and manners don't really exist between companies and citizens, so what do we do?
Manners exist between companies and citizens, in fact they have a lot of manners, compare their manners to the public sector and you'll see. But in terms of pollution I don't think it's that hard currently, basically fund anti-pollution measures through already existing taxes and then hire companies to take of pollution issues, the other day I've seen some proposal for generating clouds with seawater and purpose-built ships that would cost about 20Bn per year and totally offset the global temperature rise the US makes, I don't know if it works or not and haven't paid much attention but the point is that geoengineering is pretty cheap right now, pollution is a non-issue if we want it to.
Are you suggesting loudly crunching chips has no negative or positive effects on people around them? Are you saying there is no loss in productivity? Is not what Carl defines as harmful enough? The point is, almost every harm can be quantified as an analysis on productivity and just the fact that Carl qualified that he was being harmed by the chips signifies that harm in productivity has been dealt.
@2:18: I don't think Betty would stop crunching the chips so loudly if she were hit with a corrective tax. I think the outcome would be that she wouldn't buy them at all. She's being hit with the tax at the point of purchase, not the point of crunch.
His potato chip example does fail in the sense that the owner of the property where the chips are eaten ultimately decides what behavior is permitted. If Carl and Betty can't work it out between themselves, the owner of the property has the final say.
But negative externalities can exist. And since this was just an example to explain the concept, I think we can forgive him for this very minor flaw.
Why not let the market decide, by first issuing pollution licenses and then allowing polluters to bid on the licenses?
Learn Liberty discusses these concepts because they need to be addressed by anyone who wants to argue for economic freedom. Its hard to have a discussion about liberty without some idiot bringing up "externalities".
No, what I meant is "To what do they attribute the name of 'fries'? "
First you have to produce the evidence of groundwater contamination. Then you have to quantify it.
At one point gasoline had lead in it. When the US government regulated there be no more lead (there was an exernal cost to having it), they introduced MTBE to increase octane. The government demanded it, and it ended up being a greater polutant.
Same with the coating to make pillow fire resistant making them burn easily.
Let's go with actual facts before we make the laws.
Allow me to expand, just to make sure I'm being clear - the concept of externalities was invented with the express purpose of justifying public policy that trumps the voluntary arrangements of free individuals. If we allow our definition of "harm" to be framed by mere subjective opinion, any third party can use "externalities" as a blunt instrument to impose their will on others. According to your own assertion, all they have to do is CLAIM they were harmed.
When political discussions with progressives or democrats turn to me pointing out the negative externalities that taxes cause, I find they agree with the concepts of triggers. Simply, if a law or tax doesn't fall within a specific percentage range of a desired result within the desired time frame, then the law automatically has to be reworked then scrapped under a 3 strikes type of rule.
The loud potato chips was a good analogy, but you got stuck in the analogy. You needed to relate it to the kind of externalities we normally talk about, like air pollution.
Yes, in this case, the conclusion they want to draw simply doesn't follow from their logic, so they fail to draw a conclusion.
Good thing there's only two weeks left in the year.
externality is simply "unintentional indirect remote influence on a third person", and the original two parties should not bear any responsibility because that externality arise out of chance~
Fries are called chips... like you just said. I believe you meant to ask "What do they call crisps?"
Externalities of free trade is no doubt more than compensated for by increased standard of living. If not then 'we the people' will take action. This is how supply & demand regulates. Eg, the "green movement" was not a government movement, it was a movement by the people. When people care about bunny eyes, people look for "cruelty free" products, eliminating a negative externality. People also dislike strip mining, slaughter houses etc, and vote (with wallets and feet) accordingly.
In my home country of Canada, it's illegal to smoke in restaurants. So that helps.
update the video with a lnk 1:22 to "what prices tell you" youtube. com/watch?v=WPy-QKXofQs
Those "chips" are falling out of both their mouths and destroying the classroom.
Just because government can't find some "perfect number" to tax doesn't mean taxes shouldn't be used. There is no such thing as perfection in economics. Sometimes, even oftentimes, taxation is the best solution available.
See 1:30
The example given above was a simple, laymen's term explanation. It was not realistic. In reality, taxes are given to negative externalities like industrial pollution, noise pollution.
I just discovered another externality, I want to eat potato chips! The government should pay me for a bag of chips!
I'm suggesting that if the idea of externalities is to be taken seriously, our definition of "harm" can't be based on arbitrary, subjective claims based on feelings and whims. If someone is making a noise I find annoying, it is within my power to focus my mind and move past it. If you are suggesting that an annoying noise bears a direct causal relationship to a quantifiable loss in my productivity, I'm here to tell you that you are practicing pseudo-science.
Now I want chips...
So, when we assume p = property and i = isolation, the following is concluded:
p -> i
-i
∴ -p
Negation Property.
Property is a logical fallacy. And this is also true of intelligent property, Everything is a remix (everythingisaremix(.)info/watch-the-series/) explains beautifully.
And the fact that free-market capitalism is based on a logical fallacy expresses itself in externalities.
Continued...
There is no incentive to treat people badly, though incentives may provoke uninformed- or reckless- people to exercise malicious behaivor. Incentives causes solutions, not problems.
The more you know???
haha awesome
OUCH, MY HEAD IS SPINNING....
Just make property rights absolute and treat pollution as an assault on property rights and sue the companies for dumping unwanted trash on your property.
And cookies are biscuits!
There is no Externality in this example, Betty could eat her chips quietly or at home. Art is in no way responsible for Betty's rude behavior.
The dudes face lol
The state itself is the biggest externality of all.
when is a potato chip not just a potato chip? When it's also a crisp (little british joke) :)
I lost it when I saw Betty, wtf.
I love the video, but Betty will haunt my dreams. ;-)
I don't believe the government know the perfect carbon tax either but it will still act as an incentive and you can't really expect a coal company to cut the locals in for complaining. Complaining to who? Are you suggesting a class action lawsuit? would that work?
...conclude that property requires the existent possibility of isolation, because that is a possible decision what influences and doesn't influences your property.
But isolation is impossible. In both classical physics and quantum mechanics, there is no such thing as isolation. Everything influences all other things. Gravity attracts everywhere, heat gets everywhere, and everything is made up of waves, influencing their neighbours. Isolation is impossible. Continued...
No, he stated that Brits call what we call chips, crisps, and they call what we call fries, chips, and I'm sure the point of his question was: is there anything which they call by the name, fries?
And what they call chips, we call french fries
If chips are called crisps, and fries are called chips, then what do they call fries?
O.K. move past the noise polluut from Betty to the groundwater pollution from Fracking. Your not dealing with just Carl now but hundreds or even thousands of people being affected. When the majority of society doesn't want an externality they shouldn't have to deal with it.
Leave her alone! She's beautiful.... on the inside... >.>
If everyone was paying for ALL their expenses, both externalities and accepted costs, nobody would invest in destruction, pollution-generating factories, all that. Nobody would be able to afford the costs of the externalities. Furthermore, property is actually a logical fallacy. Let me explain:
What is property? The control over your property, the ability to decide what that property does and what influences and doesn't influence property.
From here we can (continued... -.- TH-cam limits...)
Dang, looking cute in the wig.
Dat Betty
A 'negative externality' is either a tort, or suck it up. A 'positive externality' is good for you, quit complaining or pay for more of it.
learn 2 science
Simple? My argument would take all of 60 seconds to explain. The negative externality argument is ultimately an elitist one.
Incorrect. Property rights do exist. The air around the house has been homesteaded and therefore if a coal plant starts pumping crap into that zone, that is an invasion of the homeowners property. It is the equivalent of someone driving by and dumping trash bags on your lawn. If you want to blame someone for the havoc pollution causes, look to the government who set a judicial precedent dating back to the mid 1800s that it is alright to pollute if it is in the name of the "Greater good".
Uh, no. It is precisely the strict adherence to property rights that is core to libertarian principles that allows these seemingly difficult situations to be dealt with in a peaceful, consistent and non-arbitrary manner. The alternative is basically what we have now which is might makes right. You can violate people's persons and property so long as you are stronger and/or have more political influence. See: large corps and eminent domain.
Take a person with no specialised knowledge. Have them be told "clean energy such as geothermal good" and "fracking bad" dozens of times by news media, schooling and social media until everyone repeats the same line. Then ask: Are you in favour of geothermal energy? Answer: Yes of course. Ask: Are you in favour of fracking? Answer: No, it's bad!
Of course, the process of generating geothermal energy involves the same techniques as releasing natural gas from rocks, including hydraulic fracturing
Ok, but do i ask a guy for a buck everytime he blows smoke in my face and increases my risk of cancer?
Umm, from what you are talking about with time off of work and such, you are more referring to a wedding then a marriage, right? In the case for a wedding being an externality, to the guests at least, does not hold water. Guest go of their own free will and get the enjoyment of seeing 2 people pledge their lives to one another. There might be a case of marriage being an externality, but not in regards to the examples you gave.
I like this video. I'm a big libertarian, but my biggest intellectual issue with the philosophy is pollution. I feel like a minor bit of noise pollution isn't the kind of third party effect that is a concern. The issue is a mill polluting the air and kids in the area getting asthma or the planet warming. Clearly this is a violation of property rights of third parties. I feel like we avoid this as libertarians. Please, tackle the big issue.
Betty be THICC
The effects on carl have NOTHING to do with the transaction and lie solely with Betty. She's a pig and would have acted rudely no matter who sold a product. Leave Art alone, he did nothing
How will 'manners' or 'bargaining' work on an industrial scale when big business is raping the planet. Unfortunately addressing people's grievances is not the only problem of externalities, sometimes the 3rd party is nonhuman, the environment for example. I'm not saying Pigovian taxes are the best way to address externalities either, but both left and right wing economics seem to be at a loss in fixing negative externalities.
Art didn't ask Betty their pronouns. I'm canceling you.