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1、PARTTHREE1500-17008.FISCALPOLICYANDPROPERTYRIGHTSWeestablishedinChapterIthatanefficienteconomicorganizationisthebasicrequirementforeconomicgrowth.Ifsuchanorganizationexiststhenasocietywillgrowifitsodesires.Ideally,byprovidingtheproperincen-tives,afullyefficientec
2、onomicorganizationwouldinsurethattheprivateandsocialratesofreturnwerethesameforeachactivityandthatbothwereequalamongalleconomicactivities.Suchasituationwouldrequirethateachindividualdesirestomaximizehiswealthandthathehastheexclusiverighttouseasheseesfithisland,la
3、bor,capital,andotherpossessions;alsothathealonehastherighttotransferhisresourcestoanother,andthatpropertyrightsaresodefinedthatnooneelseiseitherbenefitedorharmedbyhisuseofhisproperty.IfsuchaneconomicShangri-Laweretobeinstitutedforthesocietyasawhole,theproperamoun
4、tofresearchanddevelopmentwouldbeper-formed,newknowledgewouldbeappliedtoeconomicactivitiesatthepropertime,thecorrectamountofhumanandphysicalcapitalwouldbeavailableandutilized,andeachfactorofproductionwouldreceivethevalueofitscontributionatthemargintooutput.Insum,t
5、hesocietywouldgrowattheoptimalratedeterminedbyitspreferenceforcurrentgoodsrelativetofuturegoods.Noteveninmoderntimeshavetheseconditionsexisted,forthetrans-actioncostsofestablishingsuchaneconomicorganizationwouldbeprohibitive.Whilepropertyrightsremainimperfectlyde
6、finedorenforced,pFivateandsocialreturnsinsomeactivitiescontinuetodivergebecausesomeofthecostsorbenefitsdueanindividualwhousesortransfershisresourceswillaccrueinsteadtoathirdparty.Thisdiscrepancypersistsbecause,giventheexistingpoliticalandeconomicorganizationofthe
7、economy,thecostsofeliminatingeachexternalitywouldexceedihebenefits.Inanyspecificsituation,itmightbetooexpensivetonegotiateaco.ntractua1arrangementwitheverypersonaffectedbyaneconomicactivity,oritmightbeimpossibletomeasureefficientlytheexternalcostsorbenefitsimpose
8、dortoinfluencethegovernmenttochangethesituation.Thusthecorrectionhingesonbothcontractualandmeasure-mentcosts,andwhereeithersortispresenttheexternalitywillpersi
