Positive externalities are more common than you think

Actions in a commodity exchange or a social exchange, strictly speaking, have positive externalities--you benefit others by taking a action.

Market guided by the invisible hand is a place where free trade happens, where these positive externalities come into existence.

All that the government should do is to encourage actions with positive externalities and discourage activities with negative externalities. This internalization of externalities will generally promote economic growth. However, the government should not use monetary incentives as the only way to do so. We should pay attention to not only people's extrinsic motivation, but also their internal motivation.

Strengthening social norms is an important way that is often overlooked.


a combination of invisible hand vs. visible fist

Schelling (1971:94): regulation conveys important information. To know an action carries with it a large penalty forcefully makes the point that such action violates what society regards as the public good.


Compositional fallacy occurs when an analyst considers only data on individuals, but draws conclusions about the entire society. This procedure is a fallacy, because the micro-level units are inadequate and too small to represent phenomena and processes at the societal level.

Ecological fallacy occurs in social analyst when only data from large macro-units are available, yet the analyst draws conclusions about individuals. This procedure is a fallacy in that the macro-units are too large to represent individual differences within the unit.


Men cannot live on bread alone.
utility does not depend on monetary payoffs alone. It should also include innate psychological satisfaction.


A system perspective.
The whole is greater than the sum of its parts.  --Aristotle
The macro-level focuses on cultural systems, political systems, economic systems, and social systems. The micro-level focuses on the personality system.

Structure consists of the interrelated set of events that repeat themselves in a patterned way to complete the system's cycle of activities. Since it involves events and not things, social structure is dynamic and not static. That is, social structure is always in motion at any point in the systems's cyclical patterning. Continuing change is a fundamental feature of social life.

Feedback is information on the system's operations. Negative feedback is information fed back to a central mechanism that reports disturbances and deviations in the system.

Such informational input is as critical to a system's effectiveness as its intake of energy. Yet, leaders often resist the bad news about the social systems they govern and fail to act. The failure of Communist governments to act on the negative feedback they received on their systems led to their collapse.

It is a major task of social science to provide society with negative feedback.

Any change in one part of a system will often affect all other aspects of the system. unintended consequences.

Conspiracy theories typically oversimplify social life and fail to understand its systems character.

Can severe punishment help? Antibiotics--an impressive system of defense against infections. The success of this effort led to the development of new drug-resistant micro-organisms.