THE MYTH OF SOCIAL COST.pdf - Institute of Economic Affairs

S. N. S. CHEUNG
as hours of piano playing, and the value of marginal private
product as the marginal value to the piano player of enjoying
his own music. Columns i and 3 are shown in Table C, with
Column 3 now representing the per-hour time-cost to the
piano player. Column 6a is a variation of Column 6, with the
uncontracted marginal value of music to the neighbour turning
into a nuisance beyond 8 hours of play. We calculated the
values in Column 13a by aggregating the values in Columns 2
(Table A) and 6a for each amount of input. In Table C,
Columns 3 and 13a form our fourth balance, and these marginal
values are again equated at 8 units of input, £i2=£i2. The
total social gain reaches a maximum of £140 (not shown) at 8
units of input, or where the total social economic waste
(Column ga) is zero. The values ofthe waste here (Column ga)
may be obtained in the same manner as for Column 9, or by
summing the differences between Columns 3 and 13a. Each
difference represents a waste at the input margin.
It will be recalled that under private maximisation the scale
of operation will be at 8 units of input. But in Table C, the
maximum social gain is attained also at 8 units of input!
This means that the piano player who totally disregards
TABLE C
(0
nput
0
1
2
3
4
5
6
7
8
9
10
11
(3)
Marginal
Private
Input
Cost
£
0
12
12
12
12
12
12
12
12
12
12
12
(6a)
Value of
Marginal
Uncontracted
Effects
£
0
21
18
15
12
9
6
3
0
-3
-6
-9
(13a)
Marginal
Social
Effects
£
0
47
42
37
32
27
22
17
12
7
2
-3
(9a)
Total
Social
Economic
Waste
£
140
105
75
50
30
15
5
0
0
5
J 5
30
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