Externalities

Cassandra Syndrome

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So the external cost of the transaction between the Irish company and the Irish consumer is borne by the Ethiopian peasant farmer.

.
And what about the externalities the Ethiopian peasant farmer faces from subsidised EU farming produce flooding the Ethiopian market?

What about the externality of rapid transition to free trade after the multilateral trade agreements at 2001 Doha WTO talks steered by your beloved former EU commissioner Peter Mandelson?

What about the restrictions imposed on Ethiopian peasant farmers from industrialising themselves because of global laws and regulations relating to carbon trade?
 


captainwillard

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Externalities are factors exogenous from/to the particular economic model

However the particular economic model could be extended to include the previously external factor

cYp
You are now entering the arena of philosophy and mathematics. Godel's Theorem of recursion effectively states that every mathematical system/model can create situations/problems which cannot be solved within the rules of the system.

A system could never be big enough to cover all possible problems.
 

cyberianpan

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You are now entering the arena of philosophy and mathematics. Godel's Theorem of recursion effectively states that every mathematical system/model can create situations/problems which cannot be solved within the rules of the system.

A system could never be big enough to cover all possible problems.

You are also correct there, in that any , wholly logical system, may well have inconsistencies due to having "accepted" axioms

Economics is of course shakier than even say pure maths (which has been proven shaky)

All that said... the factors we are capable of recognisign as externalities, are ones, that we could theoretically expand a model to include, such expansion - wouldn't carry any special increased risk of incompleteness

Also... of course the EMH itself has been proven false, so economics is rather a mess on even say the "internalities"

cYp
 

Cassandra Syndrome

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Economics is a social science. It has more to do with human action than mathematics.
 

Socratus O' Pericles

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My reading of economics is progressing slowly.

Are merit goods of necessity externalities if so why the distinction? What is the rationale for government intervention & does it always of necessity provide an externality effect. What does information failure to the consumer mean in this context?
 

Cnoc a Leassa

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I have no thoughts and no clue as to how beekeeping can damage the economy myself.
Not much use to the immediate subject matter but reminds me of the great PG Woodhouse line about a golfer – the least thing upsets him, he misses short putts because of the uproar of the butterflies in the adjoining meadows.
 

owedtojoy

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I've come across a new term (for me) i.e. externalities it seems that it is a positive or negative side effect of an economic transaction.

That is it is something the market does not allow for? Examples given were pollution and beekeeping.

If a bank fails it is not the fault of any one transaction but a series of transactions can cause the externality of bank failure. Moral hazard is wrapped u pin here somewhere too. At this stage I couldn't follow the discussion any more.

Anybody any thoughts on this??
In environmental law and environmental economics, "negative externalities" (costs imposed on others that are not taken into account by the person taking the action), are the effects of pollution, like the effect of living adjacent to a coal burning plant, with smog, mercury in the air etc. or a pigfarm, or a noisy neighbour, or a busy nightclub next door, or a windfarm, or a fracking well, etc.

To get the person imposing the externality to pay usually requires a court visit - or the state may impose regulations to protect the public in advance. Libertarians favour the first, liberals the second. Conservatives delude themselves that negative externalities do not exist. Try telling that to Erin Brockovitch.

The biggest negative externality of the 20th century is climate change, which is going to impose a cost on everybody, but how to pay for it is a really tough problem.

Yer economist for negative externalities was a contemporary of Keynes called Arthur C. Pigou. Arthur Cecil Pigou: The Concise Encyclopedia of Economics | Library of Economics and Liberty

I don't know any example of a positive externality.
 

ibis

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In environmental law and environmental economics, "negative externalities" (costs imposed on others that are not taken into account by the person taking the action), are the effects of pollution, like the effect of living adjacent to a coal burning plant, with smog, mercury in the air etc. or a pigfarm, or a noisy neighbour, or a busy nightclub next door, or a windfarm, or a fracking well, etc.

To get the person imposing the externality to pay usually requires a court visit - or the state may impose regulations to protect the public in advance. Libertarians favour the first, liberals the second. Conservatives delude themselves that negative externalities do not exist. Try telling that to Erin Brockovitch.

The biggest negative externality of the 20th century is climate change, which is going to impose a cost on everybody, but how to pay for it is a really tough problem.

Yer economist for negative externalities was a contemporary of Keynes called Arthur C. Pigou. Arthur Cecil Pigou: The Concise Encyclopedia of Economics | Library of Economics and Liberty

I don't know any example of a positive externality.
On a small scale, a simple example of a positive externality would be a business keeping its immediate area clean - the business does it to attract shoppers, but there's also a positive result for non-shoppers.

Technological advances can have a positive externality where they're not perfectly exploited by the creators of the technology - the technology is available to other users at a far lower cost than it would otherwise have been had they had to create it themselves.

In general terms, whenever there's money being left on the table, and you're getting something for less than cost, that's a positive externality. In free-market terms, you can view that as a failure to fully exploit the value of something to the user, just as a negative externality is a failure to fully account for the use of something by the user.

Take the example of a local park. A developer decides to build apartments overlooking the park, thereby offering his customers a view of a green space. The park is a positive externality for the developer, because he doesn't pay directly for the 'use' of it (he may pay a competitive premium for the site because of it, but he doesn't pay that to the park). And there's a symmetry there, because the apartment block overlooking the park is a negative externality for the park users.
 

Lempo

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I've come across a new term (for me) i.e. externalities it seems that it is a positive or negative side effect of an economic transaction.

That is it is something the market does not allow for? Examples given were pollution and beekeeping.

If a bank fails it is not the fault of any one transaction but a series of transactions can cause the externality of bank failure. Moral hazard is wrapped u pin here somewhere too. At this stage I couldn't follow the discussion any more.

Anybody any thoughts on this??
In this theme a more clear example of negative externality would be a professional creditor giving payday loans to debtors who are on the verge of having their personal economies tipped over. High interest rates will ensure the creditor can make profit from the debtors as a collective while he doesn't have to be worried about any individual failing debtor who will have his personal economies wrecked and subsequently lose all incentive to work for the money he won't be getting to keep and voluntarily falls on welfare, causing a negative externality on the society.

And yes, there is a massive moral hazard here that the creditor will do exactly that if allowed.
 
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ibis

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In this theme a more clear example of negative externality would be a professional creditor giving payday loans to debtors who are on the verge of having their personal economies tipped over. High interest rates will ensure the creditor can make profit from the debtors as a collective while he doesn't have to be worried about any individual failing debtor who will have his personal economies wrecked and subsequently lose all incentive to work for the money he won't be getting to keep and voluntarily falls on welfare, causing a negative externality on the society.

And yes, there is a massive moral hazard here that the creditor will do exactly that if allowed.
Lempo's post covers the point that "the economy" is actually a mass of positive externalities, some of which may not, as per his example, appear very positive at all.
 


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