Preemptive Right

And finance Allah shmoop What our property rights and the

rule of incentives to finding property rights can sometimes help

groups of people solve problems Property rights are the rights

of legal ownership of a certain resource or property like

when you own a tree one that's throwing shade onto

another property Well that's legal shade throwing from one neighbour

to another The shade is an example of what we

call an externality to side effect from one party's activity

that affects another If the shade is considered a bonus

well nobody likes skin cancer you know Then it's a

freebie something they didn't pay for but are glad to

have Anyway I eat It's a positive externality If the

shade is considered a problem by the neighbour like go

well if they want to get their tan on well

then it would be considered a negative externality Well we

usually focus on negative externalities since people don't like them

A common example of a negative extra analogy in economics

runs when factories pollute nearby residential areas whether by making

the air quality horrible or leaking chemicals into ground water

which results in early deaths and dork while jaw dropping

medical bills and all kinds of other sadness Well positive

externalities air important too since they can result in moochers

mooching hard core If you've ever put more than your

fair share of work into a quote team unquote project

you know the drill You work hard only to see

other people than taking credit for work they didn't do

We call this the free rider problem where one group

gets benefits without paying any expenses or costs for those

benefits which fall on someone else You know we've all

been there on one side or another negative and positive

externalities both cause what we call dead weight loss which

measures how inefficient things are for society We prefer no

dead weight loss which would mean that everyone's paying for

what they're getting People who have to deal with negative

externalities would get paid for those externalities and people with

positive externalities would pay for the freebies they're getting When

it's clear what belongs to whom It's easier to work

out externality problems like the problem of the Chocolate River

use in Willy Wonka's Chocolate Factory Let's break it down

One group of people Loompas Chako Loompas make chocolate which

requires the Chocolate River Another group of Oompa Loompas Gobstopper

Loompas used the chocolate river for Transportacion Will the Chako

Lupas don't like that The Gobstopper Loompas are using the

river since they're polluting it that pollution is a negative

externality for the Chako Loompas Well the Chaka Loompas feel

like they were minding their own business Just making chocolate

you know that you eat And then the Gobstopper Loompas

just started polluting the river Well they have to take

extra time now in money to clean the pollution out

of the Chocolate River which they don't think is fair

Another reason that Chaka Loompas are mad is that the

Gobstopper Loompas are just using the river as transportation for

free Where the Chaka Loompas CIA Free Rider Problem The

Gobstopper Loompas CIA positive externality As long as nobody says

anything Polluters air incentivized to keep pollutant without paying for

it and moochers r incentivized to keep on mooching At

the Opal Opal lunch all things got tense before violence

broke out One Loompa Loompa who works with the squirrels

said You guys should just property rights so Mr Wonka

doesn't have to get involved again And that's just what

they did the belugas All agreed that the Chako Loompas

should have the property rights to the river and that

the Gobstopper Loompas should hey to use and well to

pollute the river The fees paid went towards paying for

the pollution filtering of the chocolate River I eat that

negative externalities The fees accounted for them using the river

as a positive externality too Since the Gobstopper Loompas had

to actually pay to use the river Now they were

more conservative with how they transported their gobstoppers resulting in

less pollution in the river for the Chaka Loompas toe

filter out as well as well the money to pay

for it resulting in an efficient market outcome This is

an example of how private property rights can solve externality

problems without public solutions and all kinds of congressional mandates

needed for public solutions are government interventions like the popular

cap and trade thing For example the idea that you

can internalize an externality with property rights and no need

for government intervention is thanks to Nobel Prize winner and

very smart human being Ronald Coast the coast there um

under the coast here um it doesn't matter to whom

property rights are assigned as long as they're assigned to

someone If they are then poof gnome or externalities Well

unfortunately the Coast serum of setting property rights to get

rid of things like negative externalities doesn't always work For

instance it's easy to assign property rights to a river

But what about to the air Well pollution start small

than spreads all the way across the globe No one

owns all the air so yeah it's a problem This

is what we call the assignment problem when it's hard

to ask Sign property rights to a thing There's also

something called the holdout problem Well what if some of

the Temple Loompas were stubborn and couldn't reach an agreement

on what to do when there's shared ownership There's the

potential for someone in the group to hold out because

they disagree with everyone else Congress Sorry just coughing Excuse

me There's something else that happens sometimes when you try

to use property rights to fix things transaction costs and

negotiation issues right Well the Coast theory assumes that negotiating

doesn't cost anything Big corporations might have the time and

money to go through court to settle disputes about the

pollution they're doing and not paying for But families don't

Which is why class action lawsuits are ah thing Transaction

costs are rial and can be a serious barrier when

there are problems You know like the assignment problem the

holdout problem and too high negotiation costs Well we turn

to public solutions than over private ones to solve those

externality issues If only things were as simple in the

real world as they are in Willy Wonka's chocolate factory

life would be better provided you keep away from the 00:06:06.407 --> [endTime] squirrels Of course Yeah they'Ll get you