Wednesday, November 26, 2014
Unobstructed
This short U.S. Bank ad shows how voluntary transactions move an asset to a higher valued use.
It also shows a slightly subtler notion called the Coase Theorem. It shows that there is no need for government intervention, if the property rights are defined well enough for bilateral trade to occur.
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Most things that we place value on do satisfy some basic need. I was drawn to this video because I work in the banking industry and am also taking a managerial economics course for my MBA degree. The hat became of value to her so see could see and it became a money making opportunity to him because he was paid for it. That was a great commercial for that particular bank, since it was able to illustrate the ease of being able to send money to people. Or as you stated, “This short U.S. Bank ad shows how voluntary transactions move an asset to a higher valued use.” As a personal example, I do that with credit cards when I sell them to clients. The customer doesn’t have to open the credit card, but I give incentives to make them value the card and its benefits/features, thus creating a higher-valued product. Also in this case, it brings up another point made in chapter 2 of your text that critics of capitalism think that if one person makes money, someone else must be losing it. When I sell the credit card and the customer then uses the card, it is of voluntary nature and it does in fact ensure that both parties gain. (Froeb, McCann, Shor, & Ward, 2014) The bank makes money on fees such as interest, late fees, etc. But the client gains a line of credit, and gets such incentives such as terms of no interest, reward points, cash back, etc.
ReplyDeleteWorks Cited
Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2014). Managerial Economics; A problem solving approach (3rd edition). Mason, OH: South-Western Cengage Learning .
Thoughts on the Coase theorem
ReplyDeleteI started reading about the Coase theorem and was initially puzzled by the thought that, apparently, the theorem would legitimize highly polluting corporations to “buy” their way out of potentially criminal consequences on the communities which are closely located to these corporations. Theorems don’t always state the limitations of their applicability, which is true not only in the field of mathematics, psychology or medical science, but in the field of economics. These domains of knowledge that I just listed, for example, rarely interfere with each other, and remain silos of study and research, while neglecting those occasional interference when real life brings them together for questioning or conflicts: highly specialized researchers in each of these knowledge fields would generally dismiss these interferences as fringes or marginal queries. In reality, precisely when the pursuit of profit goes against a community clean air act or against noise pollution or water pollution regulations, is that we gauge the level where we trade-in human health and society tolerance to adverse corporation effects, whether they are housing development, industrial spills, agricultural intensive land exploitation, or highway extensions.
While reading more though on this theorem, I understood that more research on the subject may answer my angst to the limits of the theorem. The example of the Coase theorem against noise pollution (Beggs, 2015) “fits the typical definition of an externality, since noise pollution from a factory, a loud garage band, or, say, a wind turbine potentially imposes a cost on people who are neither consumers nor producers of these items”. This researcher makes the point that “it is efficient to let” a company “make noise if the value of operating” the company is “greater than the noise cost imposed on those who live near” (Beggs, 2015) the company. “On the other hand, it's efficient to shut down” the noise-producing company “if the value of operating it is less than the noise cost imposed on nearby residents” (Beggs, 2015). This implies that regulations on noise cost would be exactly that gauge where we, as a society and nation, would value the human comfort and health, function of noise parameters and medical threshold.
The Coase theorem doesn't simply mean that assigning property rights to a polluter will cause the pollution to continue (Popp, 2010). “A deal could be struck among both parties to bring about a more desirable solution. However, the decision on property rights will affect the distribution of income in the final outcome” (Popp, 2010).
“Externalities are a source of economic inefficiencies” (Autor, 2010). “The Coase theorem identifies two conditions for an official market solution: complete property rights and low transaction costs” (Autor, 2010). The researcher clarifies that “understanding why externalities persist in equilibrium comes down to identifying why the Coase theorem does not hold in specific circumstance. Rectifying the externality means to restore the market conditions so the Coase theorem will hold. When that is not feasible, external quantity regulation (like command and control regulation) may be needed” (Autor 2010).
References:
Beggs, J. 2015. The Coase theorem by Jodi Beggs, Economics Expert. Retrieved from http://economics.about.com/od/externalities/a/The-Coase-Theorem.htm
Popp, D. 2010. Public Administration 777 -- Spring 2010. Economics of Environmental Policy, Lecture # 4 -- The Coase Theorem. Professor David Popp. Retrieved from http://classes.maxwell.syr.edu/pai777/index.html
Autor, D. 2010. Massachusetts Institute of Technology. Lecture Note 13 – Externalities, the Coase Theorem and market remedies by David Autor. 4.03/14.003 Microeconomic Theory and Public Policy, Fall 2010. Retrieved from http://ocw.mit.edu/courses/economics/14-03-microeconomic-theory-and-public-policy-fall-2010/lecture-notes/MIT14_03F10_lec13.pdf
If trade of the item (obnoxious helmet) is possible and transaction costs are low (according to the US Bank website there are fees associated with pay a person based on how quickly the funds are needed and how much you intend to send), then the coase theorem will hold true and bargaining will lead to the most efficient outcome. The theorm defines zero transaction costs as no impediments to bargaining. In this case, the woman in the commercial was willing and able to pay a likely nominal fee to remove the helmet from her line of sight and thus add value to her game experience. Using the color of the equipment and fan gear, you can infer that based on the likeness of the helmet these fans are at a Buffalo Bills game. In 2013 the average price of a ticket to a Buffalo Bills game was $62.50; the question remains did the woman in the commercial create wealth and bring an asset to higher valued use? It is difficult to make out, but it appears the woman paid the man $28.50 to obtain ownership of the helmet. If she paid an average price for a ticket for that particular game, say it was a non-divisional game against an average opponent, then she had better have set her ticket ceiling at $91.01 , otherwise she would have used up her entire buyer surplus and exceeded the amount willing to pay to attend the game.
ReplyDeletehttp://nfl-teams.pointafter.com/q/27/2696/What-is-the-average-ticket-price-of-a-Buffalo-Bills-home-game
https://www.usbank.com/online-banking/pay-a-person-faqs.html
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