catallaxy files

catallaxy in technical exile

Positional externalities and the Coase theorem

with one comment

Commenting on my post on positional externalities, c8to made the insightful comment that:

positional goods and coase theorem are bubbling around in the bottom of my mind…but i havent connected the two yet… i sort of think coase’s theorem is like goedel’s incompleteness…it pops up everywhere in different forms

As it turns out, c8to has foreshadowed one of the many liberal responses to the problem of positional externalities (and whether they are worth taxing) discussed in this Policy article by Will Wilkinson:

    Even if some positional competition creates negative spillovers, the best policy solution is rather less clear than Frank, Layard, and others imply. In his seminal 1960 article, ‘The Problem of Social Cost’, Ronald Coase destroyed the older conception of externalities. Coase drew attention to the fact that externalities exist only as an interaction of preferences. I may smell of jasmine, to the delight of most who enter my orbit. But if you are allergic, my fragrance may be far from pleasant. A tax on jasmine may benefit you, but at the cost of those who take pleasure in the scent. Coase instructs us to look for the ‘least-cost avoider’. If it costs you least simply to stay out of wafting distance, then that will be the most efficient course.
    The cultural variability and open-endedness of status makes it clear that we are not helpless to avoid the harsh side-effects of positional competition. It is within our power to opt out of any particular status race, and to compete for status on a different dimension, those ‘harmed’ may well be the least-cost avoiders.

The rest of Wilkinson’s article is also worth reading.


Written by Admin

November 13, 2006 at 10:47 pm

Posted in Uncategorized

One Response

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  1. This bloke says it all

    Basically, the point is that lefties are trying to justify basing social policy on their own prime vice, envy.

    Back in the 40s, the Government decided that certain goods, such as fur coats, radios and jewellery had to incur a higher rate of sales tax than other goods. The only vestige of that now is the luxury car tax, a ridiculous impost that probably costs more to collect than it actually brings in to the Treasusry coffers.

    But the thing that amuses me about Gruen’s silly proposal is how it could be done in a simple fashion. What are his criteria of what should be taxed? Should the tax be based purely on value, like the luxury car tax? Do we use ad valorem rates or a flat rate that comes applies to the taxed objects once they are worth more than a certain value? Do we have “land rich” provisions to ensure that people don’t acquire land tax free through purchasing companies; and aggregation provisions to ensure that people don’t split a taxable transaction so as to come under the threshhold? How do we tax land, services and goods in the same Act without breaching sec 55 of the Constitution?

    What a lot of effort, just to satisfy the priggish envy of the useless left.

    Rococo Liberal

    November 14, 2006 at 7:46 am

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