Some Fallacies in the Interpretation of Social Cost

Knight, Frank H.

doi:10.2307/1884592

Cited by 691 publications

(257 citation statements)

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“…We can see that our profit maximizing road or railroad owners, if competitive, will internalize the congestion externality by imposing a fare, as a function of distance from the CBD, equivalent to the optimal congestion toll. 13 And therefore, the residential land use is efficient whether or not the land use for transportation is efficient. Second result is due to Theorem 1.…”

Section: Other Conditionsmentioning

confidence: 99%

“…He presented an example, known as "the case of two roads", to demonstrate that a public investment to construct a new 12 We are indebted to one of the referees to point this out. 13 See Section 5 for equivalence of the competitive fare and the optimal congestion toll. 14 See Section 5 for more detailed discussion of the literature.…”

Section: Note On the Literaturementioning

confidence: 99%

“…He called for a tax which covers the marginal social cost of externality to secure the maximum efficiency in the use of the two roads. Knight (1936) contested the Pigou's contention by proving that if the ownership of the road is given to a private sector agent, precisely the ideal situation, which was identical to the one brought out by the Pigouvian tax, would be established through the operation of ordinary economic motives. Faced with this claim, Pigou withdrew his example from his last edition of the Economics of Welfare.…”

Section: Note On the Literaturementioning

confidence: 99%

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Optimality of a Competitive Equilibrium in a Small Open City with Congestion

Akai

Fukushima

Hatta

1998

Journal of Urban Economics

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Consider a small spatial economy with a congestion externality in the public transportation sector. We prove that the competitive equilibrium allocation coincides with the social optimum allocation despite the presence of the congestion externality. To this end, we first specify a set up conditions for a competitive equilibrium allocation, and then we find another set of conditions for social optimality. By comparing the two set of conditions, we prove that the competitive allocation is compatible with the social optimal allocation. We would like to emphasize the fact that no optimal external toll, such as the optimal congestion toll collected by a transportation authority, is required to attain the optimal allocation. Our privately owned and selfish profit maximizing transportation companies end up with charging the price exactly equivalent to the optimal toll.

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Section: Other Conditionsmentioning

confidence: 99%

Section: Note On the Literaturementioning

confidence: 99%

Section: Note On the Literaturementioning

confidence: 99%

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Optimality of a Competitive Equilibrium in a Small Open City with Congestion

Akai

Fukushima

Hatta

1998

Journal of Urban Economics

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“…It is this diffusion of consequences that was described as the "tragedy of the commons" by Garrett Hardin (1968). While Hardin's essay attracted strong attention, the economic consequences of common property were explored well before Hardin, for instance by Frank Knight (1924) and H. Scott Gordon (1954). With private property, individual owners can exclude others from using that property without receiving the owner's permission.…”

Section: The Fiscal Commonsmentioning

confidence: 99%

Property, Taxation, and the Budgetary Commons

Wagner¹

2002

Politics, Taxation, and the Rule of Law

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The central concern of economic analysis has been to explain how a market economy generates an orderly pattern of economic activity even though there is no person or office that creates this order. The order that we observe emerges as if it were imposed by an invisible hand. Only there is no hand.Rather, many hands participate in the generation of orderly economic life. What promotes the coordinated patterns of our economic life is the framework of institutional rules within which people conduct their activities. This institutional framework is characterized mainly by the principles of private property and freedom of contract. Economics is centrally concerned with explaining how it happens that when economic relationships among people are governed by the principles of private property and freedom of contract, productive patterns of economic activity emerge and societies flourish.One question that arises is how government relates to this institutional framework. Nearly all schools of thought assign to government an important role in maintaining and preserving this institutional framework. This leads to justifications for such things as military, police, and courts as instruments for preserving and maintaining this institutional framework. But modern governments do far more than this. Through their budgetary operations, governments provide a wide array of services, including parks, schools, retirement annuities, medical insurance, and weather forecasts, to mention but a few examples.

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“…Knight (1924), one of the intellectual founders of the Chicago School, provided an example of an economy with both price-setting and a particular class of externalities but where the decentralized equilibrium is nonetheless efficient. Knight considered the allocation of motorists (buyers) between a free, uncongestible road and a faster road subject to a congestion externality.…”

Section: Introductionmentioning

confidence: 99%