The framework of analysis offered here represents a radical departure from both standard welfare economics and its application in the area of externalities. For reasons discussed at the outset, and reiterated throughout the text, the perfectly competitive general equilibrium (PCGE) has been completely jettisoned as a normative guide for economic analysis. Furthermore, the focus was not switched to some other end-state result. Instead we began from a recognition of the fact that real-world market processes are open-ended, and that real-world human actors necessarily pursue goals within an open-ended framework of trial and error. In other words, knowledge of means are neither perfect nor “given” to anyone in the system-not market participants, not policy makers, and certainly not economists.
KeywordsWelfare Economic Market Process Coercive State Externality Problem Perfect Competition
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- 1.As an example of this influence, it is becoming increasingly common for introductory economics texts to discuss the notion of competition as a process as an alternative to the standard approach (Ekelund and Tollison, 1991; Gwartney and Stroup, 1990). For other examples of influence on non-Austrian writers in this area see Brozen (1982), Ekelund and Sauerman (1988), and Shughart (1990).Google Scholar
- 2.See papers by Rothbard and Egger in Rizzo, ed. (1979). For a follow-up application of an ethical approach often endorsed by Austrians see Rothbard (1982A). Also see Kirzner, 1989.Google Scholar
- 3.Recent research has suggested that acid rain may not be a policy-relevant externality in the sense discussed here; see Krug (1990).Google Scholar
- 4.Much of Anderson and Leal’s work, while not specifically relying upon the kind of externalities analysis presented here, can be viewed as an application of the IIS to specific environmental problems. Many problems similar to those being discussed here are considered and property rights based solutions are suggested. Anderson and Leal’s work is specifically notable because it takes into account many of the knowledge problems and subjective value problems emphasized here.Google Scholar
- 5.For an exception see Wallace Oates (1988) who argues as if there are no insurmountable problems, either conceptually or practically, with implementing effluent charges that will, presumably unambiguously, enhance economic efficiency. Others, while noting many of the problems discussed here, choose to ignore them or not take them seriously. [See Kneese (1977), and Baumol (1970)].Google Scholar