The Problem Of Social Cost

Decent Essays

The Problem of Social Cost The Problem of Social Cost by R.H. Coast is an article examining the economic problem of externalities. The example of externality is a firm’s smoke imposed negative effects on neighbor properties. The standard economic analysis such of the economic situation is generally defined in differences terms of private and social good followed by the treatment of Pigou Economic Welfare. The standard economic analysis results in achieving most of the economists desires to hold firms responsible for the harmful that caused to injury by the firm’s smoke, or applies tax on the firm to equivalent the money term of damage that caused, or even excludes the firm from the residential area. Coast argues that such of an economic analysis is inappropriate because it incurs unnecessary results or desires. The Reciprocal Nature of the problem The traditional analysis obscure the nature choices to be made, avoid the harm to one party would conflict harm to another. The traditional analysis tends to miss out the key features of externality that is reciprocal nature. The reciprocal nature indicates that the externality is not simply result of one party’s action, but rather result of both parties’ combine actions. Similarly, either party can prevent the damage. For instance, Cattle damages crops of adjacent farmer, so cattle raiser can fence property or farmer leaves the land uncultivated. Economic optimal is maximize the joint value of outputs of both parties by

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