Efficiency and Externalities in an Open-Ended Universe: A Modern Austrian Perspective
Index
absolute liability, 101
actions, efficient (Kirzner), 46
actions, voluntary (Rothbard), 41-43
alternative, highest valued, 40
Anderson, Terry L., 89n4, 107, 114, 118n4
arbitrage, 64
Armentano, Dominick T., xiv, 1, 12n5, 40, 45
artifactual man, 46
Baden, John, 13n9, 115
bargaining process (Coase), 92-93, 96, 106-7
Baumol, William, 2, 12-13n7, 118n5
benefits. See external benefits; individual benefits; social benefits; subjective benefits
Benson, Bruce L., 85, 116
Block, Walter, 18, 23
Boettke, Peter, 8, 109n1
Böhm-Bawerk, Eugen von, 32-33
Brownstein, Barry P., 21
Brozen, Yale, 118n1
Buchanan, James, 6-7, 12n3, 46, 57, 78, 90n12, 91
Butos, William, 31
Calabresi, Guido, 106, 107
Carroll Towing Co.; United States v., 109n5
catallactic efficiency, 12n1, 58; externalities in context of, 74-75; institutional setting for, 62; in invasion of property, 76-77; as Kirzner’s welfare economics standard, 70; legal framework for (Kirzner), 66; property rights criteria consistent with, 66-67; strict liability concept as means to promote, 108; theory of, 58
catallactic inefficiency, 69
catallaxy
actions of individual in, 26; defined, 11, 58, 111; economist’s role in, 64; efficiency of, 62; exchange process in, 63; individually-determined and ranked goals in, 58-59; open-ended nature of, 68, 70
causation concept (Coase), 78, 101-3
certainty, 67
See also uncertainty
Coase, Ronald H., 18, 65, 76, 78, 90nn11, 12, 92-94, 98, 109nn2, 7, 115
Coase theorem
Austrian criticism of, 95-99; liability rules in, 94-95; social costs in, 92-93
coercive action (Rothbard), 41-42
collective expenditures (Wieser), 34-35
collective goods (Hayek), 23-27
coming to the nuisance rule
in catallactic efficiency analysis, 103-4; Coasean analysis of, 104-5; promotion of catallactic efficiency under, 113; in property titles issue, 107-8
common law process, 98-99
compensation issue
in Coasean and Pigouvian analysis, 105; using catallactic approach, 106; See also corrective justice
conflict
minimizing, 63; over property use, 15, 67, 69, 76
consumer behavior theory, 58
cooperation, voluntary, 116
coordination standard
in competitive process (High), 50-51; of Hayek, 52; of O’Driscoll and Rizzo, 53; state of complete, 47-48; See also discoordination; pattern coordination; plan coordination concept (Kirzner)
Cooter, Robert, 107
copyright laws, 21-22, 36
copyrights, 80-81
Cordato, Roy, xiv, xv, 4, 36, 40, 55n3, 91
corrective justice, 100-101, 106, 107
cost-benefit analysis
interpersonal (Coase), 65; social, 57-58
costs
Mises/Rothbard definition of external, 16; in Rothbard’s analysis, 43; subjective, private nature of, 6-8; See also external costs; individual costs; social costs
damage relief (Coase), 107
demonstrated preference concept (Rothbard), 41-44, 55n1, 59, 86-88
discoordination, 48, 49, 50-51
economic analysis
Hayek’s rule for normative, 113; rejection of PCGE as normative guide for, 15, 111; when limits to, 79-80
economic analysis, normative
relation to ethics, 113; in tort law, 99
economic efficiency
within catallaxy, 58; difference from catallactic efficiency, 11, 59; exchange as dominant social mechanism for, 63
economic goods, 28
economic inefficiency, 68-69
economic welfare. See welfare economics concept
efficiency. See catallactic efficiency; economic efficiency; individual efficiency; perfect efficiency; social efficiency
efficiency problem
in catallaxy, 75; for everyone, 116
efficiency theory
criteria for, 58; tenets of Austrian economics in, 59
Egger, John B., 79, 100, 118n2
Ekelund, Robert, 118n1
eminent domain concept, 107, 110n11
ends independence, 59-60, 65, 113
entrepreneur
as arbitrager, 70; equilibrating actions of, 55n7; role in plan coordination concept, 47-48; social function of, 70
envy, 43
Epstein, Richard, 100, 106
ethic/ethics
boundary with economics, 113; in judicial remedies, 105-6; Lockean natural-rights, 22
exchange process
as corollary to private property, 63; entrepreneur in, 70, 71n1; with information from price system, 64-65; as social mechanism, 63
expectations
with erroneous price information, 69; uncertainty in, 67
external benefits
Hayek’s position on, 23-27; internalization of, 21-22, 27; Menger’s position on, 28; Mises/Rothbard interpretation of, 18-23, 49-50, 82-83; Rothbard’s interpretation of, 42; welfare effects of, 18-19
external costs, 16-18, 116-17
externalities
Austrian economists’ position on, 4-8, 35; in Coase literature, 69; in context of catallactic efficiency, 74-75; ethics in normative analysis of, 113; inefficient, 49; internalization of, 18; Mises/Rothbard position on, 16-23; in neoclassical economics analysis, 10; in Pigouvian analysis, 15, 69; from social efficiency, 74; subjectivity of, 7, 29; welfare consequences in neoclassical view, 5; See also negative externalities;
externalities
non-policy-relevant externalities; positive externalities
externalities concept
defined, 2; neoclassical approach to, 36; of Pigou, 2
externality problems
in Mises/Rothbard analysis, 28, 36; non-policy-relevant, 81-86; in Pigouvian analysis, 15; Pigouvian approach to, 111; policy-relevant, 75-81; property use as, 15
fairness, 107-8
Farrell, Joseph, 91
free-rider problem
conditions for, 3; effect of, 83; Hayek’s position on, 24-25; rejected by Mises and Rothbard, 22
Friedman, David, 85
Garrison, Roger, 1, 45
general equilibrium analysis, 9
in Kirzner theory, 47-48, 52; in plan coordination concept, 45, 47-48
Goodman, 98
goods
economic opposed to non-economic (Menger), 28; produced by the state (Böhm-Bawerk), 32-33; state provision of, 26-27; See also collective goods; public goods; pure public goods
government intervention
in catallaxy, 87; circumstances for, 23; effect on resource allocation of, 20-21; question of necessity for, 115-16
Gwartney, James D., 118n1
Hand formula, 95, 97, 102
Hayek, Friedrich von, 6, 7, 8, 11, 12n5, 13n8, 23-27, 37n3, 40, 57, 58, 59, 62, 65, 66, 91, 95-96
High, Jack, xiv, 18, 23, 50-51
Huber, Peter W., 101
ideal institutional setting (IIS)
as benchmark, 65-68; deviations from policy benchmark of, 76; externalities in framework of, 88, 99-101; as guide to externality efficiency, 74; institutions established according to guidelines of, 85; prices and outputs in, 73
ignorance. See rational ignorance; utter ignorance; veil of ignorance
IIS. See ideal institutional setting (IIS)
imitation effect, 31
imperfect knowledge (Kirzner), 51
individual
in catallaxy, 58-64; conditions hindering goal seeking of, 74; efficient use of resources in social setting, 63; goal-seeking (Hayek and Kirzner), 60-61; in
individual
social setting of catallaxy, 62; See also ends independence; value scale
individual benefits, 58
individual costs, 58
individual efficiency, 60-62
individual efficiency (Kirzner), 45, 51, 60; See also perfect efficiency; social efficiency
inefficiency, 68
See also catallactic inefficiency; economic inefficiency; institutional inefficiencies; natural inefficiencies
information
in catallactic efficiency theory, 61-62; circumstances for improved, 47-48; effect when lacking, 48; erroneous or false, 69, 76-77; filtering in catallaxy of, 68-69; generated by individual goal seeking, 73; implications in static state, 6, 8; institutional setting for discovery of, 62-63; new, 116; for resource allocation, 9-10; use in market activity of, 8; See also knowledge; price system; resource allocation; time
injunction relief, 106
in catallactic efficiency approach, 107; in Coasean analysis, 106-7;
institutional inefficiencies, 69
institutional setting
conditions for adjusting, 73; deviations from, 69; necessary for free market process, 17-18; role in catallactic efficiency theory of, 61-65; See also ideal institutional setting (IIS)
institutions
Coase and Buchanan analyses of, 90n12; established according to IIS guidelines, 85-88; failure concept, 87-88; origins for IIS, 115; See also ideal institutional setting (IIS)
internalization
conditions improved by, 21-22; welfare enhancement of, 18;
Kelman, Mark, 89n3, 101-2
Kirzner, Israel, xiii, 1, 5, 8, 10, 17, 40, 45-54, 55n4, 60, 62, 64, 66, 67, 79, 84, 87, 89n5, 118n2
Kneese, Allen V., 9, 118n5
knowledge
in catallaxy of exchange opportunities, 64; imperfect, 4; improvements in (Kirzner), 47, 51; in plan coordination concept (Kirzner), 47; of resources in catallactic efficiency theory, 63; with time static opposed to dynamic, 5, 8; See also imperfect knowledge (Kirzner); information; perfect knowledge (Kirzner); rational ignorance; time; utter ignorance
knowledge problem
Hayek’s position on, 7-8; Hayek’s treatment in collective goods issue, 25-27
Krug, Edward C., 118n3
Lachmann, Ludwig, 4-5
Lancaster, K. J., 9
Lavoie, Don, 1, 8, 40
law and economics, 91-95
catallactic efficiency approach to, 105; of coming to the nuisance, 104
Leal, Donald R., 89n4, 107, 114, 118n4
legal framework
certainty regarding rights in, 67; consistent with goals of catallactic efficiency, 66; institutional inefficiencies in, 69; market process coincides with, 87
Lewin, Peter, 100
liability rule
application to eminent domain concept, 110n11; in Coase’s analysis, 93-95; current aproach to, 101; damage relief remedy under, 106; with economic efficiency, 107; See also absolute liability; products liability; strict liability
Lipsey, Robert E., 9
Littlechild, S. C., 23, 92
market discovery process, 84
market failure concept, 87-88, 111
market process
Austrian emphasis on dynamic, 17; in Austrian school analysis, 36; as catallaxy, 57; in catallaxy, 58-62; circumvention of, 17; with demonstrated preference (Rothbard), 41; discoordination in process of, 50-51; dynamic, disequilibrium nature of, 4; effect of positive externalities on, 24; external benefits in, 20; ideal legal framework for (Kirzner), 66-69; information and knowledge in, 8-9; institutional conditions necessary for, 17; in Kirzner’s plan coordination concept, 45-54; in Menger’s analysis, 30; negative externalities in, 16; open-ended nature of real-world, 5, 11, 111; Pigouvian interpretation of, 15; public policy to induce conformation of, 3; relation to passage of time, 4-5; right to contract and exchnage in, 85; in socialist economy, 9-10; as welfare enhancement (Rothbard), 41; See also exchange process; information; knowledge; price system
Marshall, Alfred, 2
Melamed, Douglas, 106, 107
Menger, Carl, 28-29, 31
Mises, Ludwig von, xiii, 1, 9, 10, 11, 16, 17, 18-19, 20-22, 40, 57, 80, 90n13
Mises/Rothbard analysis
external benefits in, 18-23, 49-50, 82-83; external costs in, 16; externalities in, 16-23; externality problems in, 28, 36; negative externalities in, 36; property rights in, 16-18, 22; public policy in, 36; resource allocation in, 19-20
Mishan, E. J., 2, 3, 12nn3, 4, 90n11
money theory (Menger), 30-31, 35
Musgrave, Richard A., 34
Myrdal, Gunnar, 39
natural inefficiencies, 68-69
Neck, Reinhard, 37n4
negative externalities
allocation by non-owners, 17; circumstances for problems of, 16-18; Coasean perspective of, 60, 92-93; defined, 2-3, 37n2; effect of tax imposition on, 3, 7; as exogenous to market economy, 16; internalization of, 16-18; Menger’s position on, 28-29; Mises/Rothbard approach to, 36; in Pigouvian approach, 36; of unintentional tort, 99
negligence
in catallactic efficiency approach, 105; in Coasean analysis, 102; economic concept of, 94-95; See also Hand formula
non-economic goods, 28
non-policy-relevant externalities, 81
Nozick, 89n5
nuisance. See coming to the nuisance rule
nuisance law, 77
Oates, Wallace E., 2, 3, 118n5
O’Driscoll, Gerald P., 1, 5, 8-10, 12n5, 13n9, 17, 23, 40, 52, 53, 79, 100-101
open-ended framework
in catallaxy, 68, 70; of real-world market process, 5, 11, 111; of real-world trial and error, 95, 111, 116
optimality (neoclassical theory), 3-4
organizational behavior theory, 58
Orr, Lloyd D., 115
Osterfeld, David, 44
Palmer, Tom G., 89n7
Pareto optimality, 2, 16-17
partial equilibrium analysis, 9
patent laws, 21-22, 36
patents
property rights for, 80-81; in violation of property rights, 22
pattern coordination, 53
PCGE. See perfectly competitive general equilibrium (PCGE)
Peacock, Alan T., 34
perfect efficiency concept, 47-48, 61-62, 70
perfect knowledge (Kirzner), 47-48, 61-62
perfectly competitive general
equilibrium (PCGE); absence of, 19; in Coasean analysis, 112; economic analysis without benchmark of, 111; in economic efficiency theory, 64; in neoclassical externality theory, 2-4; normative standards of, 36; rejection as benchmark, 4-5, 15-36, 111-12, 117; in welfare economics interpretation, 4; See also general equilibrium analysis; partial equilibrium analysis
Pigou, A. C., 2, 27, 29-30, 91
Pigouvian analysis
Coase alternatives for, 92-93; to economic welfare, 36; to effects of externalities, 29; efficient and inefficient actions in, 46; not accepted by Austrian economists, 39
plan coordination concept (Kirzner), 45-54, 86-88; See also coordination standard; general equilibrium; individual efficiency; perfect efficiency; social efficiency
plans
among market participants, 46-4; conditions for making, 64-65; formulated in institutional setting, 73; inability to carry out, 76; policy-relevant externalities, 75-81; See also non-policy-relevant externalities
Polinsky, A. Mitchell, 93, 109n3
positive externalities
Austrian economists’ approach to, 39; Böhm-Bawerk’s position on generation of, 32-33; defined, 2-3, 37n2; effect of subsidy imposition on, 3; generation of (Rothbard), 42; Hayek’s position on, 24; Mises’ intepretation of, 18-23, 36, 82-83; in modern welfare economic analysis, 31; in Pigouvian approach, 36; Rothbard’s interpretation of, 18-23; See also external benefits
Posner, Richard, 60, 94, 109n3
preference
by deduction in catallaxy, 59; in Hayek’s analysis, 25; in Pigouvian analysis, 9; revealed through action, 40; sequential expression of, 44; signals of change in, 64; when held constant, 47-48; See also demonstrated preference; revealed preference; value scale
prices
in ideal institutional setting, 73; with negative externalities, 16; perfectly competitive (Coase theorem), 95;
price system
conditions for erroneous information, 69; generates information of exchange opportunities, 64-65, 67-68; signals from, 8; signals from discrepancies in, 48; See also arbitrage
Priest, George L., 98-99
private cost, 7
private property
in catallactic efficiency theory, 63, 65; circumstances for violation of rights to, 41-42; in Coase theorem, 65; conditions for emergence of, 28
products liability, 101
property rights
in Coasean analysis, 91, 93, 96, 99, 103; conditions for catallactic inefficiencies related to, 69; copyrights as, 80-81; criteria for (Kirzner), 66-67; denning, 79-81; definition and enforcement in Mises/Rothbard analysis, 16-18, 22; for establishment of markets, 84; ethical question related to, 79; as externality problem (Menger), 29; in ideal institutional setting, 74; Menger’s position on clearly defined, 28; Mises’ approach to, 22; rejection of intellectual, 80; Rothbard’s approach to, 22; strict liability as means to enforce, 108; See also causation concept; copyrights; patents; private property; property titles
property rule, 106
property titles
not owned by anyone, 77-79; when not clearly delineated, 69
public goods
in Hayek’s analysis, 24; state provision of, 37n4, 111; theory of, 85; See also collective goods; optimality; pure public goods
public policy
analysis without perfectly competitive general equilibrium, 117; Coase position on goal of, 92; guidelines in context of catallaxy (Hayek), 65; to induce market conformation, 3; in Mises/Rothbard analysis, 36; resulting from PCGE foundation, 5, 7; role in ideal institutional setting of, 73; theory of justice applied to, 79; using second best theory in goals for, 114; See also subsidies; taxes
pure public goods, 3, 21, 24, 49
rational ignorance, 55n4
reasonableness concept, 107-8
Reese, David A., 110n9
relative efficiency, 45
resource allocation
in centrally planned economies, 9-10; in free market process, 17; in Mises/Rothbard analysis, 19-20; in PCGE framework, 19
resource/resources
individual’s need for information about, 61, 63; unowned, 103; when information is erroneous, 69
revealed preference, 40
Rizzo, Mario, xiv, 1, 5, 8-10, 12n5, 13n9, 17, 23, 40, 52, 53, 69, 77, 79, 100-101, 112, 118n2
Rothbard, Murray, xvinn1, 2, 10-11, 12n6, 15-17, 18, 20, 21, 22, 23, 40, 41-44, 55n2, 79, 80, 85, 87, 100, 114, 118n2
Rubin, Paul H., 98
Samuelson, Paul A., 3
Sauerman, David, 118n1
Sax, Emil, 34, 37n4
second best theory, 9, 113-14
Selgin, George A., 1
Shavell, Steven, 109n4
Shughart, William, 118n1
social benefits
in catallaxy, 58; as fabrication, 111; marginal, 2; in neoclassical interpretation, 7;
social cost/benefit analysis, 29
social costs
in catallaxy, 58; as fabrication, 111; marginal, 2; in neoclassical interpretation, 7: See also private cost
social efficiency
catallactic efficiency as expression of, 58; judgment of, 74; in plan coordination concept, 45-48; See also individual efficiency
socialist planning schemes, 9-10
social order
catallaxy as, 58-59; level of knowledge in, 59-60;
social utility theory (Rothbard), 40-44, 59; See also demonstrated preference concept (Rothbard)
social welfare
in context of catallaxy, 58-64; effect of externalities on, 18-19; example of circumstances to improve, 17;
state
apparatus to enforce property rights, 22; role in Böhm-Bawerk analysis, 32-33; Wieser’s perception of role of, 34; See also government intervention
strict liability concept, 100-101
of Austrian economists, 100-101; in Austrian school approach, 102; in catallactic efficiency approach, 105; causation concept in, 101-3; in Coase theorem, 94; injunction relief and damage relief under, 106; See also corrective justice
Stroup, Richard L., 13n9, 115, 118n1
Stubblebine, William C., 12n3
subjective benefits, 7-8
subjectivism, 4, 6-7, 17, 29, 36, 58-62 See also ends independence
subsidies
as influence on market behavior, 3, 111; without PCGE foundation, 111
taxes
to influence market behavior, 3; in subjective value approach, 7; without PCGE foundation, 111
theory of the firm, 58
time
relation to market activity of, 4-5, 9; role in catallactic efficiency, 61;
Tollison, Robert, 118n1
tort
economics of, 92-95; unintentional, 99;
tort law
conflict over property in, 99; economics of, 91; negligence rule in, 77; See also strict liability concept
transaction costs
in Coase theorem, 92-93, 96, 106-7; in Kirzner’s analysis, 49-50
trauma, 43
trial and error
in adjustment of value scales, 62, 64-65; open-ended framework of real-world, 95, 111, 116
Ulen, Thomas, 107
uncertainty
conditions related to property rights, 77; in efficiency problem, 61; in expectations, 67
United States v. Carroll Towing Co., 109n5
utility concept
in Rothbard’s analysis, 43-44; subjective nature of, 4; See also social utility theory
utter ignorance, 50, 55n4
value scale
in catallaxy, 59-65, 111; of goal-seeking individual, 60-61; individual behavior consistent with, 40; in social cost-benefit analysis, 57-58
value theory
in Menger’s analysis, 29; subjective nature of, 4, 6, 17, 36, 58-62, 98-99
veil of ignorance, 78, 103
Viner, Jacob, 2
Weber, Wilhelm, 34
welfare economics concept
assumptions for, 4; Austrian economists’ view of, 5-6; criticisms by Austrian economists of, 4-10; Hayek’s position on, 24-25; of Kirzner, 45; in Menger’s analysis, 27-31; neoclassical interpretation of, 5-6, 9, 25; Pigou’s approach to, 29-30; of Rothbard, 40-45
welfare standard
coordination as (Kirzner), 47-51; of Rothbard, 40-45
White, Lawrence H., 1
Wieser, Friedrich von, 34-35
Wittman, Donald, 104
