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Externalities


Public good from the Private


Private profit can be for the public good.

   --  Ayn Rand

The producers charity


The creator is not concerned with disease, but with life. Yet the work of the creators has eliminated one form of disease after another, in mans body and spirit, and bought more relief from suffering than altruist could ever conceive.

   --  Ayn Rand

General


  • In efficiency  total benefits > Total costs
  • Cannot be caused through market system, if orange sales fall and the price fall, that is not an externality about the farmer being damaged, others get positive externality of lower prices. Hence no net externality
  • Externalities only occur on unearned resources.
  • Difficulty is how much damage will be done, and how much people care in order to work out the value of externality.
  • Lower cleavage may cause conflicts as whether good or bad externality. Same person might have different views depending on what they are doing.
  • Some externalities do not need subsidies as the benefits are so high that people will do it anyway(brushing teeth, education)
  • Govt creates externalities free healthcare bank bailouts
  • Offence – are they suffering or getting high on self-aggrandisement – sometimes complainers are threatening
  • (Speed limit is good analogy, lower speed saves lives but we don’t ban driving and doesn’t tell us what speed limit should be.)
  • Government decisions are bad, as they don’t face the trade-offs of the organisations and individuals face.

Some thoughts on externalities from Keddaw


All non-state positive externalities are incidental outcomes of someone voluntarily engaging in some activity that is positive enough for them to do regardless of those positive externalities. Since you were not a party to them doing whatever they are doing the externalities are, effectively, free gifts.

Negative externalities are harms enforced on you by someone engaging in activities that are beneficial in some way for the perpetrator. Harms must be compensated for, either prior to them being imposed (and hence voluntary) or punitively after the fact (because they are not voluntary).

From EA magazine

  • In the early 20th century Cambridge economist A.C.Pigou developed the concept of    externalities.
  • Road transport is associated with a number of externalities, including negative ones such as congestion, noise and air pollution.
  • It is highly problematic to measure external costs in order to determine the tax rate that maximises welfare,
  • In practice, attempts to introduce an efficient pigouvian tax are undermined by methodological difficulties, special interests and political expediency.  
  • Another way to view externalities is to see them as resulting from the absence of markets. For example, there is a strong argument that congestion is caused by state ownership of the roads and in particular the absence of pricing and the disjunction between supply and demand.
  • Markets can 'internalise' many environmental externalities. Buyers and renters of housing next to a busy road might expect to pay less than those in a quieter and less polluted location
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