Tag: transaction costs

Have Gun – Will Travel — Bitter Wine

 

Paladin is hired to settle an issue between a vineyard owner and a neighboring oilman. The smoke and runoff from the oil well are damaging the grapes of the award-winning vintner. This is a classic case of externalities and the Coase Theorem would suggest the two could meet and solve the problem on their own (if there were low transaction costs), but the Coase Theorem wasn’t written about until two years AFTER this episode aired.

Check out this Econlib post for more discussion. This clip, and a forthcoming working paper, was presented at the 2019 Southern Economics Association Annual Meetings by Jon Murphy and John Schuler.

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Blackish — Castle Neighbors

 

This opening cartoon depicts Dre dutifully maintaining his castle and describing the lengths men go to in order to protect their castle. Unfortunately, we can’t always control what neighbor’s do with their castle and their decision to throw parties and disturb us is (seemingly) out of our control. The Coase Theorem would argue that so long as transaction costs are low, people should be able to bargain and sort out external costs imposed by private actions. The insinuation by Dre in this scene is that the transaction costs may be just a bit too high.

Clip recommended by James Tierney:

 

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Life in Pieces — Property Rights

 

Joan and John want to build a gazebo in their backyard, but it turns out the surveyors messed up the property lines and part of what they believed was their property actually belonged to their neighbors, Daryl and Pam. The easiest solution is to ask the neighbors for an easement, which would allow them to take over a portion of their property. The neighbors try to bargain and offer a price of $5000, but it seems past bad blood makes the exchange more difficult.

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Girlboss — Jacket Arbitrage

 

 

Sophia browses for clothes in a vintage clothing store and finds a jacket she wants to purchase. She bargains for a lower price for the jacket before leaving the store. Later, Sophia decides to sell the jacket on eBay and takes a few photos to try and make the jacket appear more fashionable. While she was able to buy the jacket for only $9, Sophia eventually sells the jacket on eBay for over $600 (the clip stops at $185).   As the show progresses, Sophia continues to sell clothes and starts an online business called Nasty Gal, which is actually still in operation today. This clip is a prime example of arbitrage, where a person can purchase an item at a low price in one area (Sophia at the thrift store) and sell it for a higher price in a different market (Sophia on eBay). In a perfectly competitive market, the price differential should narrow, but because eBay has a much larger customer base, Sophia is able to buy items from the local thrift store and resell them later at a higher price.

Thanks to Elena Montenegro for the clip suggestion!

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Ron White — Coupons

Ron White describes how he tried to buy a beer using actual money, but by the time he got to the front of the line he finds out that the vendor requires him to pay for his beer with coupons. Ron then has to go stand in another line in order to get coupons (for cash) so that he can then trade coupons for a beer.

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The Colbert Report: Evan Osnos & Cashmere

Evan Osnos discusses many of the externalities that arise from the increased production of Cashmere in China over the past decade. Osnos explains that cashmere goats in China have sharp hooves that tear up the landscape and create dust, which then travels to the United States and reduces air quality, particularly along the west coast. As cashmere consumption has increased, so has the pollution. Osnos refers to the “real costs” of cashmere items (such as a cashmere toilet seat cover that Colbert has) as including the health care costs for those affected by the dust.

Here’s a lesson plan from SERC: https://serc.carleton.edu/econ/interactive/examples/43020.html

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