ShmoopTube

00:00

And finance Allah shmoop What our property rights and the

00:05

rule of incentives to finding property rights can sometimes help

00:11

groups of people solve problems Property rights are the rights

00:14

of legal ownership of a certain resource or property like

00:18

when you own a tree one that's throwing shade onto

00:21

another property Well that's legal shade throwing from one neighbour

00:25

to another The shade is an example of what we

00:28

call an externality to side effect from one party's activity

00:32

that affects another If the shade is considered a bonus

00:35

well nobody likes skin cancer you know Then it's a

00:38

freebie something they didn't pay for but are glad to

00:41

have Anyway I eat It's a positive externality If the

00:45

shade is considered a problem by the neighbour like go

00:48

well if they want to get their tan on well

00:51

then it would be considered a negative externality Well we

00:54

usually focus on negative externalities since people don't like them

00:58

A common example of a negative extra analogy in economics

01:01

runs when factories pollute nearby residential areas whether by making

01:06

the air quality horrible or leaking chemicals into ground water

01:10

which results in early deaths and dork while jaw dropping

01:13

medical bills and all kinds of other sadness Well positive

01:16

externalities air important too since they can result in moochers

01:19

mooching hard core If you've ever put more than your

01:22

fair share of work into a quote team unquote project

01:25

you know the drill You work hard only to see

01:28

other people than taking credit for work they didn't do

01:31

We call this the free rider problem where one group

01:35

gets benefits without paying any expenses or costs for those

01:39

benefits which fall on someone else You know we've all

01:42

been there on one side or another negative and positive

01:44

externalities both cause what we call dead weight loss which

01:48

measures how inefficient things are for society We prefer no

01:52

dead weight loss which would mean that everyone's paying for

01:55

what they're getting People who have to deal with negative

01:58

externalities would get paid for those externalities and people with

02:02

positive externalities would pay for the freebies they're getting When

02:05

it's clear what belongs to whom It's easier to work

02:08

out externality problems like the problem of the Chocolate River

02:12

use in Willy Wonka's Chocolate Factory Let's break it down

02:15

One group of people Loompas Chako Loompas make chocolate which

02:19

requires the Chocolate River Another group of Oompa Loompas Gobstopper

02:23

Loompas used the chocolate river for Transportacion Will the Chako

02:27

Lupas don't like that The Gobstopper Loompas are using the

02:31

river since they're polluting it that pollution is a negative

02:33

externality for the Chako Loompas Well the Chaka Loompas feel

02:37

like they were minding their own business Just making chocolate

02:40

you know that you eat And then the Gobstopper Loompas

02:43

just started polluting the river Well they have to take

02:46

extra time now in money to clean the pollution out

02:49

of the Chocolate River which they don't think is fair

02:52

Another reason that Chaka Loompas are mad is that the

02:54

Gobstopper Loompas are just using the river as transportation for

02:58

free Where the Chaka Loompas CIA Free Rider Problem The

03:01

Gobstopper Loompas CIA positive externality As long as nobody says

03:06

anything Polluters air incentivized to keep pollutant without paying for

03:09

it and moochers r incentivized to keep on mooching At

03:13

the Opal Opal lunch all things got tense before violence

03:16

broke out One Loompa Loompa who works with the squirrels

03:19

said You guys should just property rights so Mr Wonka

03:23

doesn't have to get involved again And that's just what

03:27

they did the belugas All agreed that the Chako Loompas

03:30

should have the property rights to the river and that

03:32

the Gobstopper Loompas should hey to use and well to

03:36

pollute the river The fees paid went towards paying for

03:40

the pollution filtering of the chocolate River I eat that

03:42

negative externalities The fees accounted for them using the river

03:46

as a positive externality too Since the Gobstopper Loompas had

03:50

to actually pay to use the river Now they were

03:52

more conservative with how they transported their gobstoppers resulting in

03:56

less pollution in the river for the Chaka Loompas toe

03:59

filter out as well as well the money to pay

04:02

for it resulting in an efficient market outcome This is

04:05

an example of how private property rights can solve externality

04:08

problems without public solutions and all kinds of congressional mandates

04:12

needed for public solutions are government interventions like the popular

04:16

cap and trade thing For example the idea that you

04:19

can internalize an externality with property rights and no need

04:22

for government intervention is thanks to Nobel Prize winner and

04:26

very smart human being Ronald Coast the coast there um

04:29

under the coast here um it doesn't matter to whom

04:32

property rights are assigned as long as they're assigned to

04:35

someone If they are then poof gnome or externalities Well

04:39

unfortunately the Coast serum of setting property rights to get

04:42

rid of things like negative externalities doesn't always work For

04:45

instance it's easy to assign property rights to a river

04:48

But what about to the air Well pollution start small

04:51

than spreads all the way across the globe No one

04:54

owns all the air so yeah it's a problem This

04:58

is what we call the assignment problem when it's hard

05:01

to ask Sign property rights to a thing There's also

05:04

something called the holdout problem Well what if some of

05:07

the Temple Loompas were stubborn and couldn't reach an agreement

05:10

on what to do when there's shared ownership There's the

05:13

potential for someone in the group to hold out because

05:16

they disagree with everyone else Congress Sorry just coughing Excuse

05:21

me There's something else that happens sometimes when you try

05:23

to use property rights to fix things transaction costs and

05:27

negotiation issues right Well the Coast theory assumes that negotiating

05:31

doesn't cost anything Big corporations might have the time and

05:34

money to go through court to settle disputes about the

05:37

pollution they're doing and not paying for But families don't

05:41

Which is why class action lawsuits are ah thing Transaction

05:44

costs are rial and can be a serious barrier when

05:47

there are problems You know like the assignment problem the

05:50

holdout problem and too high negotiation costs Well we turn

05:54

to public solutions than over private ones to solve those

05:58

externality issues If only things were as simple in the

06:00

real world as they are in Willy Wonka's chocolate factory

06:03

life would be better provided you keep away from the 00:06:06.407 --> [endTime] squirrels Of course Yeah they'Ll get you

Full Transcript