Unless you match the size of the subsidy to a plausible estimate of the magnitude of the externality, you'll do worse than doing nothing. You can't just waive the label "externality" around to justify anything you want.
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Replying to @robinhanson
That math is wrong. If the subsidy is greater than zero and less than 2x the externality, it's better than nothing.
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Replying to @ITBeHa @robinhanson
If the externality has magnitude x, then the absolute value of everything between x - x and x + x has a smaller deviation from ideal than doing nothing has.
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Replying to @ITBeHa
1/ "why should I be willing to" ok, that has nothing to do with what I said here's what Hanson said: "Unless you match the size of the subsidy to a plausible estimate of the magnitude of the externality, you'll do worse than doing nothing." Note specifically "WORSE THAN"
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2/ let us imagine a simple case: property A cuts down trees, which do $10 of damage to property B. "the externalitiy". The total loss here is $10. My claim is that if the state steps in and pays A to not cut down trees, that helps B. >>>
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3/ Hanson says "only if the payment is EXACTLY $10, otherwise the situation is EVEN WORSE than with no payment". I am criticizing the word EXACTLY. Do you agree with me that a $9 or an $11 payment does increase net utility ? If so, you are already on board w me disagreeing w
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4/ Hanson. So now we need to scope it. Why is $11 pretty close? What's terrible? If the original sin was a $10 externality (so a cost to an innocent party of $10), then we know that a proposed solution is only worse than the initial case if the mispricing is > $10 off
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5/ a $11 payment is sub optimal, but the mispricing is only $1 - far better than the uncompensated negative externality. a $12 payment is sub optimal, but the misprising is only $2 - still better than a $10 uncompensated negative externality. a $19.99 payment >>>
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6/ is pretty bad - almost as bad in magnitude as the original mispricing. $0 and $20 are exactly equally bad - just in different direction
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