Capturing Externalities
It’s an economics truism that generally people respond to incentives. If you truly and deeply understand that, you know a fundamental truth about the world.

Markets Work, Incentives Matter
The two broadest generalizations one arrives at from a study of economics are that markets work and that incentives matter. People respond to incentives because that is at the core of what it means to be rational. To the extent that humans are rational, their behavior is predictably in the direction that existing incentives point to. Trade between humans is rational because both parties in any voluntary trade benefit. The abstract mechanism which enables trade is called the market. Markets work in the sense that they maximize …

One day an economist looked up and saw a little girl being attacked by a vicious dog, just down the street. He rushed over and saved the girl by strangling the dog.
A reporter interviews him and says, “Sir, this is a wonderful thing you have done. Did you say you are an economist?”
“Yes, I am,” says the economist.
“Very good, sir,” says the reporter, “this will be our lead story tomorrow, and the headline will be ‘Radical libertarian economist saves little girl from vicious dog.‘ ”
“Well, I’m not that radical,” says …