Coase said that its very difficult to imagine a system that would work better than one with private property rights and a market: mechanisms that have proved themselves repeatedly against regimes where central authority is the dominant economic force. A private enterprise system with vigorous, competitive markets seems to function best because central authority cannot have all the diffused knowledge that is captured effectively by the workings of the market, he said.
Channeling Hayek a little there … and offering a pretty fair representation of the results in my freshman seminar today when we created a pollution permit market and ran it under a bunch of different rules. One of the almost surprising insights to my students (mostly because they’ve never thought about it before) is that in…
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