Jan 3, 2010

Negative Externalities and the Environment

My favorite new phrase heard on a recent talk show is "negative externalities".
As defined by wikipedia,

"In economics, an externality or spillover of an economic transaction is an impact on a party that is not directly involved in the transaction. In such a case, prices do not reflect the full costs or benefits in production or consumption of a product or service"


"a detrimental impact is called an external cost or negative externality"

for example

"manufacturing that causes air pollution imposes costs on the whole society"


"The person who is affected by the negative externality in the case of air pollution will see it as lowered utility: either subjective displeasure or potentially explicit costs, such as higher medical expenses. The externality may even be seen as a trespass on their lungs, violating their property rights. Thus, an external cost may pose an ethical or political problem. Alternatively, it might be seen as a case of poorly-defined property rights, as with, for example, pollution of bodies of water that may belong to no-one (either figuratively, in the case of publicly-owned, or literally, in some countries and/or legal traditions).

There are at least four general types of solutions to the problem of externalities:

  • Criminalization: As with prostitution, addictive drugs, commercial fraud, and many types of environmental and public health laws.
  • Civil Tort law: For example, class action by smokers, various product liability suits.
  • Government provision: As with lighthouses, education, and national defense.
  • Pigovian taxes or subsidies intended to redress economic injustices or imbalances.
I love this theory because it gets right to the problem with the traditional capitalism we say we practice in the first world, that is that we are all related and despite zoning laws each human's actions affect the quality of life of all others on the Earth but this fact is not accounted for in the manufacturing process as much as it should be.

We must all be taught from birth that what we do affects others and should be rewarded for demonstrating we know this. If a family has 10 kids(effectively manufacturing these kids as would a factory) the negative externality would seem to me to be the cost of disposal of the consumption that all those kids will generate in their perhaps 100 year long life. Not to mention the green house gases needed to raise the food they will eat, transport them to their school and jobs, build the structures they will live in.

In a human run system the negative externality is perhaps usually directed at damage done to humans but what about the damage done to non human plant and animal life.

If you are lunching with your friends and you face a friend with non sustainable tendencies, go ahead and bring up "negative externalities" and maybe you will leave them thinking-hopefully how they can change for the better.

PM for Conserv-A-Store

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