Abstract
The framework of catallactic efficiency suggests a mode of analysis for assessing the welfare implications of externalities that differs significantly from the standard approach. Most importantly, the impact that any external effects have on particular market outcomes, i.e., prices or output levels, cannot be a deciding factor in determining the effects of the externality on market efficiency. In the context of catallactic efficiency there are no particular prices or output levels that can be deemed efficient or inefficient a priori, i.e., apart from the goal seeking activities that have generated them.
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Notes
This highlights the profundity of the knowledge problem in operationalizing standard welfare economics. The results of any current assessment of prices and outputs could only be implemented at some point in the future. Information concerning preferences and therefore opportunity costs only becomes real as it is demonstrated through goal-seeking activities. Hence to make conclusions about efficient prices and outputs that relate to points in the future one must have access to information that does not yet exist. The knowledge problem is not just the very formidable one of gathering information that is out there but is also hopelessly diffuse. It suggests that the efficient manipulation of market outcomes requires speculation about the infinite amount of information that has yet to come into existence.
This point refers to the third criterion in the IIS (see previous chapter). In some sense it is redundant once it is assumed that property rights are clearly defined and strictly enforced.
The issue of causality will be discussed in Chapter 5 within the context of a theory of torts. But within the framework of the IIS the problem of joint causality (see Kelman, 1987) is not an issue.
For a discussion of how the practical problems associated with assigning property rights in such cases might be handled, see Anderson and Leal, 1991.
For ethical perspectives on how such issues may be handled, see Kirzner, 1979 (Chapter 12) and 1989, and also Nozick (1974).
It should be noted that often the problems that patents and copyrights address are and have been resolved through contract. Books and products can easily be sold with the stipulation that they not be reproduced.
See Palmer (1989) p. 287.
Contractual agreements to resolve such issues, such as protective covenants, are completely consistent with both the IIS and catallactic efficiency.
This analysis does not apply in cases where such rights are freely given up through protective covenants. Indeed, to give up rights to one’s property in such a way, through contract, is itself a way of exercising those rights.
If this were a negative externality for some neighbors, it would be located in quadrant C and be policy-relevant.
If all such costs were included in calculations in the Pigouvian framework, there would be no way of arguing that such externalities gave rise to inefficient results. Inefficiencies arise in Pigouvian analysis only when transactions costs are subtracted from costs curves. (see Coase 1960 and Mishan 1973, p. 90)
This approach to welfare economics is not unique to Austrian economists. Coase (1960) and Buchanan (1975) have both adopted institutional analysis in discussing issues of welfare economics. In turn their work has given rise to entire fields of economic analysis (law and economics and constitutional economics, respectively) that examine the relative efficiency of alternative institutions.
This emphasis is ultimately derived from the concern that economists must not impose their values on the subjects of their analysis, what Mises called wertfreiheit (1966, p. 882–883).
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© 1992 Springer Science+Business Media New York
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Cordato, R.E. (1992). Catallactic Efficiency and Externalities. In: Welfare Economics and Externalities In An Open Ended Universe: A Modern Austrian Perspective. Springer, Boston, MA. https://doi.org/10.1007/978-1-4757-2145-4_5
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DOI: https://doi.org/10.1007/978-1-4757-2145-4_5
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