Naked Economics: Undressing the Dismal Science (Fully Revised and Updated)

When an externality—the gap between the private cost and the social cost of some behavior—is large, individuals have an incentive to do things that make them better off at the expense of others.

Good policy uses incentives to channel behavior toward some desired outcome. Bad policy either ignores incentives, or fails to anticipate how rational individuals might change their behavior to avoid being penalized.

By one calculation, if no new cases were filed in India, it would still take 324 years to clear all the existing cases from the docket.

how a country that could put a man on the moon could still have people sleeping on the streets.

Good government makes a market economy possible. Period. And bad government, or no government, dashes capitalism against the rocks, which is one reason that billions of people live in dire poverty around the globe.

In 1999, Angola’s rulers spent $900 million in oil revenues to purchase weapons. Never mind that one child in three dies before the age of five and life expectancy is a shocking forty-two years.

By 1991, the Hindustan Fertilizer Corporation had been up and running for twelve years.3 Every day, twelve hundred employees reported to work with the avowed goal of producing fertilizer. There was just one small complication: The plant had never actually produced any salable fertilizer. None. Government bureaucrats ran the plant using public funds

Per capita income in the United States is higher than per capita income in France; the United States also has a higher proportion of children living in poverty.

Burger King does not want its employees stealing. And the only way employees can steal without getting caught is by performing transactions without recording them on the cash register—selling you a burger and fries without issuing a receipt and then pocketing the cash. This is what economists call a principal-agent problem.