External Benefit and External Cost
External cost and external benefit exist because some property rights have not been clearly defined and enforced. Their existence leads to misallocation of resources.
Glossary:
- external benefitsFree benefits conferred on innocent third parties due to unassigned or poorly assigned property rights or when the cost exceeds the benefit of exercising properly assigned rights. Also known as positive externality.
- external costsUncompensated cost imposed on innocent third parties due to unassigned or poorly assigned property rights or when the cost exceeds the benefit of exercising properly assigned rights. Also known as negative externality.
Topics:
Keywords
Coase Theorem, external benefit, external cost, externality, property rights