A Property-Rights Approach for Unifying the Teaching of Externalities, Moral Hazard, and Market Power

Abstract

We show how several concepts that are treated separately in general economics texts - externalities, moral hazard, and collusion - submit to a unified treatment based on a standard analysis of property rights. Most texts recognize externalities as a problem of open access to a resource. We show that moral hazard, which is usually viewed as an information problem, is more usefully viewed as cheating on a common-property resource. We also show that while the efficiency implications differ, the logic of the textbook analysis of monopoly, oligopoly, and competition is identical to the analysis of private, common-property, and open-access resources. Unifying the analysis of these concepts is time-efficient and emphasizes the common economic intuition, reinforcing economic principles while demonstrating the power of basic economic reasoning.

JEL Classification: A2, D6