Economics Externalities Questions
A network externality refers to the positive or negative impact that an individual's consumption or production of a good or service has on others who are not directly involved in the transaction. It occurs when the value of a product or service increases as more people use or adopt it, leading to a network effect.
On the other hand, a Coasean solution, named after economist Ronald Coase, is a theoretical approach to resolving externalities through negotiation and voluntary agreements between affected parties. It suggests that if property rights are well-defined and transaction costs are low, parties can negotiate and internalize the external costs or benefits, resulting in an efficient outcome without government intervention.
In summary, the difference between a network externality and a Coasean solution is that a network externality refers to the impact of consumption or production on others, while a Coasean solution is a theoretical approach to resolving externalities through negotiation and voluntary agreements.