Should stealing a bike be illegal?  to view this from the perspective of an economist.

Does stealing a bike create a situation that is inefficient?

The loss by the victim = the gain by the thief.  So far we have a transfer (from victim to thief) but is there a net cost?  If the victim takes precautions to prevent the theft of the bike (the victim spends $25 on a bike lock and takes a minute to lock/unlock the bike every time it is used), we now have an inefficient outcome since the victim is spending money and time to prevent the bike from being stolen.  A law making it illegal to steal bikes is justified from an economic perspective since it balances out the extra costs of the precautions taken by bike owners by imposing costs on bike thieves (jail time and a fine).


Give an example of an individual choice that imposes a cost on others (an externality).  Then propose a law that fixes this problem by internalizing the cost imposed on the other party