Front Page Titles (by Subject) Summary Analysis - Cost and Choice: An Inquiry in Economic Theory, Vol. 6 of the Collected Works
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Summary Analysis - James M. Buchanan, Cost and Choice: An Inquiry in Economic Theory, Vol. 6 of the Collected Works 
The Collected Works of James M. Buchanan, Foreword by Geoffrey Brennan, Hartmut Kliemt, and Robert D. Tollison, 20 vols. (Indianapolis: Liberty Fund, 1999-2002). Vol. 6 Cost and Choice: An Inquiry in Economic Theory.
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Consider a standard example where the behavior of one person (or firm) exerts marginal external diseconomies on others than himself. These represent the loss of “goods” to others for which they are not compensated through ordinary market dealings. Application of the Pigovian norm suggests that the costs imposed externally on those who are not party to the decision-making should be brought within the calculus of the decision-maker. These costs should be added to the decision-maker’s own internal costs, costs that he is presumed to take into account. The device often suggested is the levy of a tax on the performance of the externality-generating activity, a tax that is equated to the external costs per unit that the activity imposes. Other devices sometimes advanced are institutional arrangements designed to internalize the externality. In all cases, the purpose is to bring the costs that inform or influence the decision-maker into conformity with true “social” costs. The models remain individualistic in the sense that “social” costs are computed by a simple summation over individuals in the relevant community or group.