A train company has one carriage that can be used in one of two ways: as a normal carriage, where passengers can talk freely, or as a quiet carriage, where phone calls and loud conversation aren't allowed.

There are 50 passengers in the carriage:

Who owns the silence? And should the carriage be quiet or not?

Q1: Is the efficient outcome a quiet carriage or a normal carriage?

Q2: Suppose the train company could declare the carriage either "quiet" or "normal", and passengers could bargain with each other instantly, politely and at no cost. What would the economist Ronald Coase (whom you met in #008’s worked solution) predict would happen in each case? Does the starting rule matter?

Q3: In practice, passengers on trains almost never bargain over silence. Why not?

Q4: The train company would like to charge for silence. Could it, in a single shared carriage?

Bonus: Now suppose the train has five carriages. The company can choose how many carriages to make quiet, and how much to charge for a ticket in a quiet carriage. Would a profit-maximising company provide as much quiet space as passengers want?

P.S roll up your sleeves and explore the question… once you’ve grappled with it for a while, if you are still stuck…Graduated hints below — but challenge yourself first! (Answer comes in the next edition! Subscribe to receive it directly to your inbox!)

44,964

That's the number of objects in orbit around Earth that space surveillance networks were tracking at the end of 2025.

Source: ESA Space Environment Report 2026

Why does this matter?

Space looks infinite. Useful orbit is however scarce.

Every satellite placed into orbit creates private benefits: communications, navigation, weather forecasting, Earth observation, internet access and scientific research all depend on space infrastructure. But each extra object also adds a small external cost. It increases congestion and raises the chance of a collision.

And collisions multiply the problem. One object becomes thousands of fragments, which threaten other satellites, which can break up in turn. Scientists call this chain reaction the Kessler syndrome, and ESA warns that debris would keep growing even if launches stopped altogether.

The tracked number is only part of the story. ESA estimates there are more than 1.2 million debris objects larger than 1 cm in orbit, most of them too small to track, but each capable of destroying a satellite.

This is the tragedy of the commons. Orbit is a common-pool resource: it's hard to exclude anyone from using it, but it becomes rivalrous once crowded. Each operator gains from launching, while the risks are shared by everyone. And the external cost rises as orbits fill up: doubling the number of objects in an orbital band roughly quadruples the risk of collision.

There are rules, but they're weak: international guidelines on debris aren't legally binding, and no one has the power to cap how many satellites a company can launch. Without stronger rules, prices or property rights, the private incentive to launch will keep exceeding the social incentive to keep orbit usable.

Last time, we looked at a chart comparing government bond yields in developed markets and emerging markets since 2004, and asked: what is interesting in it?

The first thing to notice is that the two lines are measured on different scales. Developed-market yields are read off the left-hand axis (0% to 5%), while emerging-market yields are read off the right-hand axis (4% to 10%).

That changes everything. For much of the period, the two lines overlap or cross, which makes it look as if the yields were similar. They weren't. Reading each line off its own axis:

So emerging-market yields were higher throughout, which is the usual pattern: investors demand more compensation for lending to emerging-market governments, because of higher inflation, currency swings, political risk, default risk or weaker institutions.

The lesson is to check the axes before reading any chart. Dual-axis charts are common in economics and finance reporting, and they can easily mislead.

Developed-market yields rose dramatically: from about 0.5% to about 4.4%, a rise of almost 4 percentage points, to the highest level on the chart.

Emerging-market yields rose much less: from about 4.4% to about 5.8%, a rise of about 1.5 percentage points.

So the gap between them shrank, from about 4 percentage points in 2020–21 to under 1.5 points today.

That's surprising, because developed-market governments are usually thought of as safer borrowers, at least in terms of default risk. Which raises the question at the heart of this issue:

Has the risky world become safer, or has the safe world become riskier?

Developed markets started from exceptionally low yields. For a decade after the 2008 financial crisis, interest rates sat close to zero and central banks bought vast quantities of government bonds (quantitative easing, or QE). When yields start near zero, there's a lot of room to rise. Four things then pushed them up:

Why might emerging markets have behaved differently? Many emerging-market central banks raised interest rates earlier, in 2021, before inflation took hold. Their yields were already high, so investors were already being compensated for inflation risk. And many emerging economies have strengthened their institutions since the crises of the 1990s, with more independent central banks and more borrowing in their own currencies.

It depends on why they're rising. A bond yield is not one thing: it's a bundle of expected interest rates, expected inflation, risk premia and liquidity conditions. Which part is moving tells you whether the news is good or bad.

Higher yields can be good news if they reflect stronger expected growth: investors expect a healthier economy, and higher interest rates to match. They're also good news for savers and pension funds, who can finally earn a decent return after years of near-zero rates.

Higher yields are bad news if they reflect rising inflation expectations or growing doubts about government finances. They also raise borrowing costs for governments (more taxpayers' money spent on debt interest), for households (mortgages) and for firms (investment). And because bond prices fall when yields rise, existing bondholders suffer losses.

How would you tell which? Economists look at other evidence:

Only in a narrow sense. A government that borrows in its own currency is much less likely to default in nominal terms, because it has access to the currency in which the debt is issued. So these bonds are close to free from default risk.

But they are not free from other risks:

So "risk-free" usually means something quite specific: you'll receive exactly the promised payments, in your own currency, if you hold the bond until it's repaid. And even default risk isn't zero for every developed-market government: countries in the euro area don't control their own currency, and Greece restructured its debts in 2012.

Yes. Whether an asset is "risk-free" depends on who holds it, for how long, and why.

Take a long-term UK government bond:

The UK showed how quickly "safe" can turn risky. In September 2022, after the government's "mini-budget", UK bond yields rose sharply. Many pension funds had used borrowing to increase their holdings of long-term bonds, and as prices fell, they were forced to raise cash fast, often by selling more bonds, which pushed prices down further. The Bank of England had to step in and buy long-term bonds to stop a spiral. The bonds themselves were as "safe" as ever. How they were held was not.

A bit of both, but with an important qualification.

Emerging-market bonds still yield more than developed-market bonds. The gap has narrowed, not disappeared.

What has changed is that developed-market bonds no longer sit in the ultra-low-yield world of the 2010s. Inflation returned, central banks raised rates, QE went into reverse, and fiscal concerns became harder to ignore. At the same time, some emerging markets have built more credible institutions and acted earlier against inflation.

So the chart does not show that emerging markets have become "safer" than developed markets. It shows something subtler: the old contrast between a low-yield safe world and a high-yield risky world has become less clean.

And it only becomes clear once you look twice.

Marginal gains… Answer for today’s question is out in two days… Come back then or subscribe to get it direct to your inbox!

P.P.S.

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