Third Commentary

Abstract

If it is accepted that the main theme that has emerged from the essays published in this volume, is the increasing importance of public goods and bads (or external costs and benefits), this concluding group must be the climax of the inquiry. Each author describes an aspect of the contribution of contemporary economic theory to understanding the logical and practical nature of the resulting problems of social choice. I have summarized some of the material in the parable presented in the first Commentary. To recapitulate, Musgrave is essentially concerned with what is known as ‘allocative efficiency’ in the production of public goods: how much of each should society produce, given limited resources, in order that ‘society’s’ preferences are better reflected in the outcome than in any other feasible outcome? Olson is concerned with what is known as ‘X-efficiency’:¹ owing to problems of measurement, society cannot be sure that, even with existing and limited resources, it might not be possible to produce ‘more’ of some public goods without producing any less of any others. Mishan is concerned with the economic implications of legal conventions regarding the circumstances in which compensation may actually be claimed for external costs or disbenefits. Basically, he wants to create a legal environment in which, starting from the status quo, any act proposed by an individual or organization that can be shown to have any potential adverse ‘external’ consequences for any other individual organization is inherently prohibited until such time as the affected individuals can be bribed to grant permission.