No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Six: Applications in Markets 145 Reflect on these examples of “tragedy of the commons.” § § Graffiti on overpasses § § Writing on public bathroom walls § § Litter on public highways As Christians we may recognize the sinful nature of man that leads to these results. But men are sinful everywhere and all the time. Why do we almost always only see these results in public establishments? You have probably never seen writing on bathroom walls in someone’s house; yet it is frequent in more public establishments. Graffiti may occasionally be sprayed on private property, but it certainly doesn’t stay there for long. And how much litter do you see on your driveway versus how much do you see on the public freeways? This is a good place to repeat our 2 nd Law of Economics: Incentives Matter! Think about the incentives to keep your private property well maintained compared to your incentive to keep public property nice. It would be nice if we all acted according to the fact that we were created in the image of God, but unfortunately we all too often act according to our fallen nature. Nevertheless, carefully designed institutional incentives can still guide us to a good result. IT’S A WRAP! You’ve now seen supply and demand in action, and seen how the market process tends to lead toward a socially desired outcome. Nevertheless, there are market limitations because of the ever-present nature of transaction costs. Yet markets continually find innovative ways to reduce these costs, such as with the internet and profit-seeking middlemen. In the next chapter we will take a closer look at the firm, and how firms respond to the opportunity costs they face to produce the goods you and I like to consume.