Part 4: Trust, Agency, and Bystanders
27 | Principal-Agent Framework
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.
28 | Cost to Bystanders
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.
30 | The Logic of the Commons
A commons becomes a commons tragedy when the collective use of a commune or open access commons exceeds its carrying capacity.
31 | Environmental Tragedies
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.
33 | Parcels
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.
34 | Communal Property
There are obvious difficulties with how private property regimes handle large events.
36 | Benefits for Bystanders
A positive externality occurs when consuming or producing something results in a benefit to a third party.
37 | Market Power
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.
39 | Monopsony Power
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.
40 | International Trade and Trade Protection
International trade is simply trade across international borders. Trading internationally gives consumers and countries the opportunity to be exposed to new markets and products.