Arrow impossibility theorem  a theorem that says that no democratic voting scheme can avoid a voting paradox.
Coase theorem   the idea that private negotiations between people will lead to an efficient resolution of externalities regardless of who has the property rights as long as the property rights are defined.
command and control  the regulations and restrictions that the government uses to correct market imperfections.
contingent valuation  an estimation of the willingness to pay for a project on the part of consumers who may benefit from the project.
convergence of positions  the concentration of the stances of political parties around the center of citizens’ opinions.
cost-benefit analysis  an appraisal of a project based on the costs and benefits derived from it.
emission tax  a charge made to firms that pollute the environment based on the quantity of pollution they emit.
externality  the situation in which the costs of producing or the benefits of consuming a good spill over onto those who are not producing or consuming the good.
free-rider problem  a problem arising in the case of public goods because those who do not contribute to the costs of providing the public good cannot be excluded from the benefits of the good.
internalize  the process of providing incentives so that externalities are taken into account internally by firms or consumers.
marginal private benefit  the marginal benefit from consumption of a good as viewed by a private individual.
marginal private cost  the marginal cost of production as viewed by the private firm or individual.
marginal social benefit  the marginal benefit from consumption of a good from the viewpoint of society as a whole.
marginal social cost  the marginal cost of production as viewed by society as a whole.
median voter theorem  a theorem stating that the median or middle of political preferences will be reflected in government decisions.
negative externality  the situation in which costs spill over onto someone not involved in producing or consuming the good.
nonexcludability  the situation in which no one can be excluded from consuming a good.
nonrivalry  the situation in which increased consumption by one person does not decrease the amount available for consumption by others.
positive externality  the situation in which benefits spill over onto someone not involved in producing or consuming the good.
private remedy  a procedure that eliminates or internalizes externalities without government action other than defining property rights.
property rights  rights over the use, sale, and proceeds from a good or resource.
public choice models  models of government behavior that assume that those in government take actions to maximize their own well-being, such as getting reelected.
public good  a good or service that has two characteristics: nonrivalry in consumption and nonexcludability.
public infrastructure project  an investment project such as a bridge designed to improve publicly provided services such as transportation.
tradable permit  a governmentally granted license to pollute that can be bought and sold.
transaction cost  the cost of buying or selling in a market, including search, bargaining, and writing contracts.
user fee  a fee charged for the use of a good normally provided by the government.
voting paradox  a situation where voting patterns will not consistently reflect citizens’ preferences because of multiple issues on which people vote.