Novel externalities

Abstract

Novel externalities are social activities for which the emerging cost (or benefit) of the spillover is unknown and must be discovered. Negative novel externalities have regained international salience following the COVID-19 pandemic. Such cases frequently are invoked as evidence of the limits of liberal political economy for dealing with public emergencies. Through a re-reading of classical political economy with the modern state’s confrontation with infectious disease in mind, we defend the comparative efficacy of liberal democracy against authoritarian alternatives for coping with these social problems. Effective responses to novel externalities require producing and updating trustworthy public information and an independent scientific community to validate and interpret it. Those epistemic capacities are prevalent in liberal democratic regimes with multiple sources of political power, an independent civil society, and practices of academic freedom. Our analysis highlights the theoretical value of polycentrism and self-governance beyond their more familiar role, of increasing accountability and competition in the provision of local public goods, towards facilitating effective national policy.

Complex externalities: introduction to the special issue

“…Instead, it can suppress market mechanisms, community-based efforts, and other voluntary solutions that could partially remedy the externality problem. Cowen and Schliesser (2023) consider novelty an essential feature of complex externalities. Considering the modern state's confrontation with infectious diseases, the authors defend liberal democracy's ability to cope with complex externality challenges relative to its illiberal alternatives.…”

The political economy of public procurement in Ukraine

“…Think tanks can provide information about regulations and institutions that encourage wealth creation (Leeson et al, 2012), as well as increase support for economic freedom, including markets and private property rights (Powell and Ryan, 2017). This is especially significant considering public information can be contested and publicly audited for state capability and the provision of public goods (Cowen and Schliesser, 2023). For information from think tanks about government to be credible, they should be, to an extent, independent from government.…”