Provided: Policy A provides economic incentives to buyers for making purchase of a given technology (At). Policy A's incentive payments are funded through a tax on buyers in adjacent markets; demand volume in those adjacent markets is reduced by technology At.

The primary justification for this is that participants in those other markets enjoy lower prices as a consequence of that reduction in demand. The accounting demonstrates that this is very nearly, but not actually, sufficient to justify compelling the payment of that tax.

To make up the difference, measurement of various externalities (environmental, health, productivity, etc.) is taken to demonstrate that buyers in those adjacent markets are meaningfully and measurably better off as a consequence of Policy A.

Objections are raised that those externalities accrue to non-buyers as well.

Question: What are understood to be the current set of best practices for disaggregating from positive externalities that accrue to the general population, to that population which is compelled to pay into Policy A? (Is it as simple as expressing those externalities on a per capita basis and including only that portion corresponding to the count of impacted buyers?)

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  • $\begingroup$ So your problem is you have quantified the size $\lambda$ of the positive externalities and added these to the benefits of policy A the result is that the cost-benefit analysis tells you that policy A is overall beneficial. However, because only a share $\alpha$ of the positive externalities are enjoyed by those bearing the costs (paying the taxes) it is possible that while overall benefits are larger than overall costs some - the payers of the tax - are made worse off?... Is this the correct reading of the scenario. I think the question could be made a bit clearer. Sorry, I do not have answer $\endgroup$ Commented 2 days ago
  • $\begingroup$ @JesperHybel Nearly exactly, yes. $\endgroup$ Commented 2 days ago


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