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A principal-agent relationship is an arrangement where one person, the principal, relies on another person, the agent, to act on the principal’s behalf.
A negative externality, or external cost, is a cost of a transaction paid by bystanders who were not consulted, and whose interests were not taken into account.
Externalities that affect people’s welfare only by affecting the price of what they are trying to sell are called pecuniary externalities. From a social perspective, pecuniary externalities are not a problem.
A commons becomes a commons tragedy when the collective use of a commune or open access commons exceeds its carrying capacity.
From an environmental perspective, we want consumers to economize. For prices to encourage people to economize on how much they consume, prices have to be tied to how much people consume, rather than how much they earn.
Property law is an ongoing search for ways to internalize what economists call externalities: positive externalities associated with productive effort and negative externalities associated with misuse of commonly held resources.
Is it generally best to convert an unregulated commons to smaller private parcels, or manage it as a commune with power to exclude non-members? It depends on what kind of problem the property regime is intended to solve.
There are obvious difficulties with how private property regimes handle large events.
Trust is the willingness to make oneself vulnerable to another person. Economic interactions, especially market interactions, tend to be based on various forms of mutual trust.
A positive externality occurs when consuming or producing something results in a benefit to a third party.
If an entity can influence the price either by setting the quantity traded or by setting the price, that entity is said to have "market power." Market power, when used, affects the market outcome resulting in a less than efficient outcome.
A monopoly is a market in which there is only one seller. In a market served by one seller, a monopolist, the price may rise above competitive level.
Where a monopoly is an economy in which there is only one seller, a monopsony is an economy in which there is only one buyer. In a monopsony, with only one buyer, it is the buyer who may have pricing power.
International trade is simply trade across international borders. Trading internationally gives consumers and countries the opportunity to be exposed to new markets and products.
The most important effect of markets isn’t that they enable us to sell everything, but that enable us not to. Everyone draws a line. Some things should not be for sale. But how can that be? If it is your kidney, for example, then why can’t you sell it?
