On the definition of externality as a missing market

Berta, Nathalie

doi:10.1080/09672567.2016.1169304

Cited by 21 publications

(13 citation statements)

References 55 publications

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“…It was only in the 1960s that the use of the concept really took off (e.g., Coase [1960], Buchanan and Stubblebine [1962], Davis and Whinston [1962], Baumol [1964], Mishan [1965], Arrow [1969], etc. ), and that a more consensual definition of externality emerged, mainly referring to unpriced individual interactions (see Berta [2017] for a history of this emerging definition). In addition, even if, from a theoretical point of view, the suboptimality induced by externalities was broadly recognized in the early 1960s, externalities were still regarded as "exceptional and unimportant" phenomena, pertaining to hypothetical rather than empirical issues (Medema [2019]).…”

Section: The Rise Of Environmental Externalitiesmentioning

confidence: 99%

“…This is probably why he did not even mention Coase [1960] -whom he probably knew at the time. 28 Arrow [1969] proposed an internalization mode that expanded the complete system of markets to include externalities in a general equilibrium framework (see Berta [2017]). More precisely, Arrow established the conditions for Pareto optimality in a general equilibrium framework with competitive markets for externalities.…”

Section: The Lack Of Property Rightsmentioning

confidence: 99%

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Efficiency without Optimality: A Pragmatic Compromise for Environmental Policies in the Late 1960s

Berta¹

2021

Preprint

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In the late 1960s, new environmental policies emerged which attempted to reach predetermined pollution standards in a cost-effective way: i.e., the ‘standard-and-tax’ approach proposed by William J. Baumol and Wallace E. Oates and the permits market approach proposed by John Dales. This paper describes the early history of the two approaches, and compares them. Although they flow from different traditions, namely Pigovian versus Coasean, and are often contrasted in the literature, these cost-effective solutions emerged at the same time and for the same reasons. First, they both tried to promote incentives-based policies against traditional regulations; second, they criticized the optimal Pigovian tax, which raised the contentious issue of measuring pollution damage. More broadly, they emerged as a kind of pragmatic compromise, fed by a common attempt to move toward more practical policies: reaching efficiency without optimality, while relying on standards whose setting is a matter for political decision.

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Section: The Rise Of Environmental Externalitiesmentioning

confidence: 99%

Section: The Lack Of Property Rightsmentioning

confidence: 99%

Efficiency without Optimality: A Pragmatic Compromise for Environmental Policies in the Late 1960s

Berta¹

2021

Preprint

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“…There are various interpretation to externality. Defined as a market failure by Bator (1958) and neoclassical economists (Helbling, 2010), the label was contended instead as missing market by Baumol and Oates (Berta, 2017;Hansen, 2002;Vatn& Bromley, 1997). Through Pigou's terminology, Dahlman (1979) asserts that externality occurs when there is a divergence between private and social cost.…”

Section: Literature Reviewmentioning

confidence: 99%

Accounting for Environmental Sustainability of the Tourism Industry: The Case of Perhentian Island

et.al¹

2021

TURCOMAT

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The study is undertaken to account and measure externalities that have crossed beyond its environmental limit due totourism activities. These measurements later integrated into thetourism revenue estimates.Hence, the study’s objectives include estimating tourism revenue, quantifyingand monetizing environmental degradations and presenting the Environmentally Sustainable Tourism Revenue (ESTR) statement.Visitors spending served as proxies to tourism revenue estimates. Data were collected from 923 tourists of Perhentian Island and analysed using two-steps decision tree analysis through Chi-Square Automatic Interaction Detection (CHAID) procedure in SPSS 22.0 software. The costs of the environment were measured loosely based on the concept of ecological footprint, tourism carrying capacity, and economic valuation techniques.The findings suggest that the cost of the environment which comprised of overshoot of environmental resources, overcapacity of environmental services and overuse of environmental asset were RM5,446,563.00, RM506,576.00 and RM1,612,160.94 – RM3,626,722, respectively.Perhentian Islands’ total cost of degradation was recorded at RM9,579,861.00 (upper limit) with net tourism revenue of RM124,724,324.00. The implication of the study suggests that Perhentian Islands tourism externalities has exceeded between5.5% to 7.1% of its environmental limit and therefore, tourism activities on the islands incline towards unsustainability. Several steps need to be taken to rectifythe environmental issues identified in the study to ensure the sustainability of the islands.

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“…It is only later, with Scitovsky ( 1954 ), that the concept of externality frees itself from the Marshallian concept of external economies to refer more widely to all kinds of unpriced interdependencies. For more details, see Papandreou ( 1994 ) and Berta ( 2014 ). Externality is identifi ed with a failure of the market: any competitive equilibrium is Pareto-optimal, "except when there is interdependence among the members of the economy that is direct" (ibid., p. 144).…”

Section: Absolute Externalities In a World Without Transaction Costsmentioning

confidence: 99%

“…[a] short circuit, as it were, of the signaling system” (ibid., p. 361) that is suboptimal. For more details, see Papandreou (1994) and Berta (2014).…”

mentioning

confidence: 99%

Market Internalization of Externalities: What Is Failing?

Berta

Bertrand

2014

J Hist Econ Thought

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The usual internalization of externality 'by the market' can be thought of through two different exchange modes: competitive markets, with Kenneth J. Arrow ( 1969 ); or bargaining, with Ronald H. Coase ( 1960 ). Although, in both cases, 'externality' refers to a non-exchanged effect that produces suboptimalities, these authors are working with two different, implicit conceptions of externality, rooted in different analytical worlds and calling for different institutions-parametric prices for the former but not for the latter. Moreover, while both start out with different theoretical frameworks, the authors share a concern for realism and unite when they introduce transaction costs, both advocating a policy design that calls for taking into account the costs of the different solutions. Nevertheless, this introduction of transaction costs does not itself escape consistency problems, since they do both maintain a reference to their respective ideal worlds.

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On the definition of externality as a missing market

Cited by 21 publications

References 55 publications

Efficiency without Optimality: A Pragmatic Compromise for Environmental Policies in the Late 1960s

Efficiency without Optimality: A Pragmatic Compromise for Environmental Policies in the Late 1960s

Accounting for Environmental Sustainability of the Tourism Industry: The Case of Perhentian Island

Market Internalization of Externalities: What Is Failing?

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