Sometimes I come up with scenarios where nothing seems to be wrong yet something still bugs me.
Say there is an economy of two people, Alice and Bob. Bob has an object, say a monthly newspaper, that he personally values at $5. Alice values the newspaper at $7 and thus they are willing to exchange the object at some price strictly between $5 and $7. Now Charlie, who values the newspaper at $10, comes along and is willing to bid a higher monetary amount than Alice, taking her opportunity to make an economic surplus of less than $2.
Did the mere presence and values of Charlie hurt Alice? In this scenario I’m inclined to say yes. Does this mean Alice has a claim to be compensated by Charlie (and Bob)? I’m inclined to say no.
Did the mere presence and values of Charlie hurt Alice? In this scenario I’m inclined to say yes. Does this mean Alice has a claim to be compensated by Charlie (and Bob)? I’m inclined to say no.
Why is this a problem? The mere presence of a bunch of people who are trying to use the road at the same time as I do hurts me. That doesn’t mean I have a claim against them. Or just look at any markets.
The general rule is that for Alice to assert a claim against Charlie, Charlie must have some sort of legally recognized duty towards Alice. Just showing loss is not sufficient.
I guess that you would also find it equally vexing if Daisy comes with a newspaper and newspaper valuation of $3 and “damages” Bob by trading with Alice.
Also note that if Bob has two newspapers he just sells to both Alice and Charlie. Is it now Charlie that complains about 3$ of damages or Alice that doesn’t get the newspaper because Charlie sets a price over 7$ while there would have been enough newspapers to go around? (I guess Bob could also complain if he only gets 2*$7 while the average valuation would have been higher).
Suspecting that there is a “trade is good” or “trade is fair” assumption for certain sense of “good” and “fair” that just doesn’t hold. Most likely you are treating market value as property. The value is not in the object to be traded but also in the needs of the peoples using it.
This is a big issue, the root of protectionism vs. free trade.
My first example is the National Energy Program from the 1970s to 1980s in Canada. Left Canada (Alice) legislated the prices Right Canada (Bob) could sell their oil to Alice while the World (Charlie) was offering higher prices.
The second example is a little more convoluted but have a look at the Canada–United States softwood lumber dispute. In this case Bob and Alice are producing newspapers for $5 and $7 respectively. Charlie is a newspaper distributer wants to protect Alice who is his sister, so he charges the buyers an extra $2 for Bob’s papers to keep things fair.
Don’t you mean free trade? Fair trade is about ensuring a non-poverty compensation to workers in poor production countries which wouln’t be that opposed to protectionism.
Yep, absolutely Alice is injured. In many market scenarios this is true. Usually, of course, Alice is both a producer and a consumer so broad protectionist laws will hurt her. But sometimes, the “pure buyer” idea is true. So, for instance, incumbent renters have a strong incentive to advocate rent control; otherwise, a frothy real estate market will force them to find new housing.
Sometimes I come up with scenarios where nothing seems to be wrong yet something still bugs me.
Say there is an economy of two people, Alice and Bob. Bob has an object, say a monthly newspaper, that he personally values at $5. Alice values the newspaper at $7 and thus they are willing to exchange the object at some price strictly between $5 and $7. Now Charlie, who values the newspaper at $10, comes along and is willing to bid a higher monetary amount than Alice, taking her opportunity to make an economic surplus of less than $2.
Did the mere presence and values of Charlie hurt Alice? In this scenario I’m inclined to say yes. Does this mean Alice has a claim to be compensated by Charlie (and Bob)? I’m inclined to say no.
BTW, the term for that concept is “pecuniary externality”.
Thank you, this was way too obvious not have been studied under some name.
Try to find actual examples. See if you can find two examples where your intuition as to which way is correct are different.
Why is this a problem? The mere presence of a bunch of people who are trying to use the road at the same time as I do hurts me. That doesn’t mean I have a claim against them. Or just look at any markets.
The general rule is that for Alice to assert a claim against Charlie, Charlie must have some sort of legally recognized duty towards Alice. Just showing loss is not sufficient.
I guess that you would also find it equally vexing if Daisy comes with a newspaper and newspaper valuation of $3 and “damages” Bob by trading with Alice.
Also note that if Bob has two newspapers he just sells to both Alice and Charlie. Is it now Charlie that complains about 3$ of damages or Alice that doesn’t get the newspaper because Charlie sets a price over 7$ while there would have been enough newspapers to go around? (I guess Bob could also complain if he only gets 2*$7 while the average valuation would have been higher).
Suspecting that there is a “trade is good” or “trade is fair” assumption for certain sense of “good” and “fair” that just doesn’t hold. Most likely you are treating market value as property. The value is not in the object to be traded but also in the needs of the peoples using it.
This is a big issue, the root of protectionism vs. free trade.
My first example is the National Energy Program from the 1970s to 1980s in Canada. Left Canada (Alice) legislated the prices Right Canada (Bob) could sell their oil to Alice while the World (Charlie) was offering higher prices.
The second example is a little more convoluted but have a look at the Canada–United States softwood lumber dispute. In this case Bob and Alice are producing newspapers for $5 and $7 respectively. Charlie is a newspaper distributer wants to protect Alice who is his sister, so he charges the buyers an extra $2 for Bob’s papers to keep things fair.
Edited for spelling.
Don’t you mean free trade? Fair trade is about ensuring a non-poverty compensation to workers in poor production countries which wouln’t be that opposed to protectionism.
Yep, absolutely Alice is injured. In many market scenarios this is true. Usually, of course, Alice is both a producer and a consumer so broad protectionist laws will hurt her. But sometimes, the “pure buyer” idea is true. So, for instance, incumbent renters have a strong incentive to advocate rent control; otherwise, a frothy real estate market will force them to find new housing.