A Tale of Two Externalities

My latest column at libertarianism.org, A Tale of Two Externalities, is now live. A slice:

The distinction between pecuniary and technical externalities is crucial. Technical externalities can be a form of market failure. Pecuniary externalities are a sign of the market working. A competitive market necessarily means that incoming firms are cutting into existing firms’ profits (or, alternatively, incoming buyers are cutting into existing buyers’ profits). Superficially, these two externalities look the same in that they both affect profits. But in their operation, they act very differently. Furthermore, the distinction between the two help us understand why properly assigned property rights are key to market functioning.