Alex, you are correct. Of course the externality still exists.
Consider, husband and wife. Many externalities exist between the two.
The externalities never dissapear but bargaining brings the unit to the
Pareto frontier. Note that coming to the Pareto frontier does not even
stop arguments over the externality since there is still an issue of
distribution!
Alex
--
Dr. Alexander Tabarrok
Vice President and Director of Research
The Independent Institute
100 Swan Way
Oakland, CA, 94621-1428
Tel. 510-632-1366, FAX: 510-568-6040
Email: [EMAIL PROTECTED]
