On the externalities example I have also worried that conventional economic treatments also completely ignore corruption. In real life I think you have to assume that the government does not always act like an angel, and therefore there is an additional cost to allowing governments to correct externalities at all. And this cost will not just be limited to the example itself (where the government introduces a sub-par solution to the specific externality in question as the result of corruption), but instead applicable to broad swathes of economic interactions where, once allowed the power to correct externalities, governments may corruptly “correct” situations where no externality truly exists.
On the externalities example I have also worried that conventional economic treatments also completely ignore corruption. In real life I think you have to assume that the government does not always act like an angel, and therefore there is an additional cost to allowing governments to correct externalities at all. And this cost will not just be limited to the example itself (where the government introduces a sub-par solution to the specific externality in question as the result of corruption), but instead applicable to broad swathes of economic interactions where, once allowed the power to correct externalities, governments may corruptly “correct” situations where no externality truly exists.