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The Calculus of Consent: Logical Foundations of Constitutional Democracy; Buchanan, James M. and Gordon Tullock
3 paragraphs found.
Ch. 5, The Organization of Human Activity
3.5.10

The interesting, and important, questions concern the possible collectivization of activities beyond this minimal step of defining and enforcing the limits of private disposition over human and property resources. Why is further collectivization necessary? What are the limits of this pure laissez-faire model? If property rights are carefully defined, should not the pure laissez-faire organization bring about the elimination of all significant externalities? Why will the rational utility-maximizing individual expect the voluntary private behavior of other individuals to impose costs on him in such a world? On what rational grounds can the individual decide that a particular activity belongs to the realm of social as opposed to private choices?

3.5.11

If questions such as these can be answered satisfactorily, even at the purely conceptual level, we shall have some theory of the organization of collective activity—indeed, of all human activity. For the most part, scholars who have worked in this field have approached the answering of such questions by attempting to explain the various kinds of relevant externalities that would remain in any laissez-faire "equilibrium." This approach seems likely to be misleading unless the equilibrium concept is defined to include the modification of private institutions. After human and property rights are initially defined, will externalities that are serious enough to warrant removing really be present? Or will voluntary co-operative arrangements among individuals emerge to insure the elimination of all relevant external effects? We must examine the action of private individuals in making such voluntary contractual arrangements before we can determine the extent to which various activities should or should not be collectivized.

3.5.47

The description of activities by the orderings employed in this chapter broadens the meaning of the term "externality," but at the same time it serves to tie together several of the loose ends that seem to have been left dangling in much of the discussion of this subject. The classical examples of external economies and diseconomies constitute only a small set of activities, and no one has discussed carefully the criteria for determining when an externality resulting from private behavior becomes sufficiently important to warrant a shift to the public sector. Few scholars in the field have called attention to the fact that much voluntary behavior is aimed specifically at removing external effects, notably the whole economic organization of activities in business enterprises. The limits to voluntary organization, and thus the pure laissez-faire model of social organization, are defined not by the range of significant externalities, but instead by the relative costs of voluntary and collective decision-making. If decision-making costs, as we have defined them, are absent, the pure laissez-faire model will be rationally chosen for all activities. All externalities, negative and positive, will be eliminated as a result of purely voluntary arrangements that will be readily negotiated among private people. Almost by definition, the presence of an externality suggests that "mutual gains from trade" can be secured from internalization, provided only that the decision-making costs do not arise to interfere with the reaching of voluntary agreements.