Environmental Economics; Externalities

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Presentation transcript:

Environmental Economics; Externalities Taylor Chapters 14-15

Externality = external effect An uncompensated effect on others. Why negative externalities? Are externalities a market failure?

Why negative externalities? Absence of enforced property rights. Pure free market: invasion requires compensation; cost is internalized.

Handling externalities Nothing (cell phones) Social disapproval (bad language) Negotiation (loud music) Merging (land by airport) Torts - law suits (neighbor’s barking dogs) Command and control, regulation (smog checks, smoking). Pollution charges (cars).