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McConnell-Brue-Barbiero: I IV. Microeconomics of I 18. Government and Market I I © The McGraw-Hill

Microeconomics, Ninth Government and Public Failure Companies, 2003

Canadian Edition Policy chapter eighteen • government and market faiLure

(1) property ownership is clearly defined, (2) the number of people involved is small, and ( ) bargaining costs are negligible. Under these circumstances the government should confine its role to encouraging bargaining between affected individuals or groups. Property rights place a price tag on an externality, creating opportunity costs for all parties. Because the economic self-interests of the parties are at stake, bargaining will enable them to find a mutually acceptable solution to the externality problem.

<environment.about.com/ newsissues/ environment/library/ weekly/aa050700.htm> Environmental externalities

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