Questions tagged [externalities]

The tag has no usage guidance.

Filter by
Sorted by
Tagged with
13
votes
2answers
2k views

Differentiate a positive externality and the absence of a negative externality. Tax or subsidize?

I hope this isn't overly semantic, but I'd like to gain some clarification on the use positive (or negative) externality. I usually shoot down suggestions for examples of positive externalities like ...
9
votes
2answers
191 views

Are obstructed views a negative externality?

I recently read an excellent paper on the causes of high urban real estate prices in the United States, Why is Manhattan so expensive? Regulation and the rise in house prices (GLAESER, GYOURKO, and ...
8
votes
1answer
329 views

A market correction for an industry which has had long-run negative externalities

Take a market where there have been long-run negative externalities. That is to say, the negative externalities have been in place long enough to have played a part in the investment decisions for all ...
7
votes
4answers
3k views

Is market failure constant? What properly defines it?

My textbook defines market failure as when "the production or consumption of a good or service causes additional positive or negative externalities on a third party not involved in the economic ...
6
votes
4answers
1k views

Are billboards beneficial for the economy? Why?

Billboards cost money to make and don't really seem to significantly benefit anyone other than billboard-makers. A company c putting up billboards presumably increases profits from the resulting ...
6
votes
2answers
3k views

Pareto optimality with externalities

I'm reading the book "Economics of natural ressources and the environment" written by D. Pearce and R. Turner. They explain that the competitive equilibrium is not a Pareto optimum in case of (...
6
votes
1answer
109 views

Pricing a negative externality under high uncertainty and severe non-linearity

Take a negative externality such as excess greenhouse gas emissions. We know some awkward things about the economic cost of this externality: There is fairly large uncertainty about the timing of ...
6
votes
1answer
232 views

Equilibrium with Externalities: Solving without FOC

I have a general equilibrium problem, where households given objective function $U(c,n)$ solve for working hours and consumption $n, c$, and firms use labor to produce a consumption good - their ...
5
votes
1answer
377 views

Understanding at a quote about externalities in law and economics

that something is an externality is partly a statement about physical reality and partly a statement about the legal system. What does this mean? I assume the aspect of externality being a physical ...
5
votes
1answer
327 views

Music Streaming Impact on Producers

I am currently writing a news commentary on music streaming services. My commentary is focused on demand and supply, consumer and producer surplus, externalities, and public goods. And there are a few ...
5
votes
1answer
616 views

What's the difference between a “consequential” and a “direct” externality?

I'm reading Png & Hui on the economics of privacy. (http://128.118.178.162/eps/io/papers/0505/0505007.pdf great review article). Can someone explain the difference between direct and consequential ...
5
votes
0answers
52 views

Estimates of magnitude of externalities generated by education?

It is standard to claim that education generates positive externalities. For example, Mankiw (2017, Principles of Economics, p. 193): education also yields positive externalities. One externality ...
5
votes
0answers
62 views

Empirical evidence on what makes a border adjustment successful at correcting a distortion without exporting externalities?

One of the challenges of constructing a national or regional market-correction scheme to remove the distortions from negative externalities, is that such a scheme is liable to create leakage: for ...
4
votes
2answers
99 views

Externality and Output

In a positive externality, can government just set the price to the socially efficient price instead of a subsidy to correct an externality?
4
votes
2answers
95 views

Does the Efficient Market Hypothesis Solve the Tragedy of the Commons?

My layman understanding of the Efficient Market Hypothesis is that there is so much brain power focused on the maximization of profit in the marketplace, that the market will find the best solution ...
4
votes
2answers
258 views

Is it right to derive social marginal benefit by adding individual prices instead of quantities?

I come across a lecture material on market functions and externalities that makes me quite confused. Here's the setup: Two stores are located next to each other. If one installs a camera system in ...
4
votes
1answer
125 views

In the case of externalities, does the initial allocation of rights affect the final outcome from the perspective of each party?

I think I understand the main implication of the Coase Theorem—that the outcome will be Pareto efficient regardless of the initial allocation of property rights, provided transaction costs are zero, ...
4
votes
1answer
771 views

Negative consumer externality vs demerit good - what's the difference?

The example I was given for each was cigarettes. What market may have negative consumer externalities but is not a market for a demerit good? What is a type of demerit good that may not have a ...
4
votes
1answer
301 views

Network goods in competitive markets vs. socially optimal network size

In networks economics, the socially optimum equilibrium is bigger than the one in perfect competition (see for instance, Easley and Kleinberg 2010, Ch. 17). Why is that so? Could you provide me with ...
3
votes
3answers
324 views

Is there really an “efficient equilibrium *price*” with externalities?

In the "Intro to Micro" approach to externalities, I've always felt uneasy as a teacher with the idea that there is something like an "efficient equilibrium" with a single "efficient price". To keep ...
3
votes
2answers
152 views

How can a free market be operated in a way that significant social and environmental costs are intrinsically covered?

More precisely, is there any practical way to operate a free market so that external costs, namely negative social and environmental impacts, become naturally (intrinsically) covered (paid for or ...
3
votes
1answer
666 views

Externalities - First order conditions

I am currently reading the book "Microeconomics: Principles and Analysis" by Cowell on my own. I'm reading the externalities chapter, and i found an interesting example: There are just two firms: ...
3
votes
1answer
37 views

Consumption Externalities in partial equilibrium analysis

I've been working on a standard partial equilibrium with externalities problem and have been having some difficulty with these (relatively) basic concepts. My issue is primarly with solving for Pareto ...
3
votes
1answer
72 views

Is there any academic source that uses the following 'standard broad' definitions of externality?

According to answer to this question by KennyLJ., there exists the following definition of externality: The simple, standard, and broad definition I favor is this: A decision's effects are called ...
3
votes
1answer
87 views

How much should it cost to close the beach?

For most of the past week a private surfing contest has closed off Steamer Lane - one of California's most popular waves - while paying only a few hundred dollars in permit fees. I think this is far ...
2
votes
2answers
69 views

Optimal Price and Quantity of Externality

I am trying to solve the following question: Let $h \geq 0$ represent a negative externality of a firm's production on one (representative) consumer. The consumer has a quasi-linear utility function ...
2
votes
2answers
191 views

Why does the European Union give subsidies to farmers?

According to neoclassical economics, subsidies are a solution to correct for the existence of externalities in consumption or production. What is the economic rationale/justification for such ...
2
votes
2answers
477 views

Providing subsidies affects Marginal Private cost but not Marginal Social Cost?

According to the theory that I'm seeing on the internet and in textbooks, when a government wants to correct underproduction due to a positive externality of production, they can decide to subsidize ...
2
votes
1answer
335 views

What are the current economic theories of product advertising?

Are there any well known economic theory references about advertising? It seems you could think of advertising as imposing a negative externality on other producers or on consumers in that it takes up ...
2
votes
1answer
529 views

Has the “dismal theorem” practical implications?

The so-called "dismal theorem" asserts that we do not appropriately account for catastrophic scenarios which have very small probability of occurrence. It has been studied in details by Martin's ...
2
votes
2answers
99 views

Internalising an externality for a free merit good

I am researching vaccinations as a merit good and I am focusing on an article which discusses how some people are rejecting one of the COVID vaccines because of misinformation about how it may be less ...
2
votes
0answers
233 views

Pigouvian subsidies for non-linear marginal external benefits

Suppose an agent is choosing how much $x$ to consume and $p_x=200$. If the agent's marginal private benefit is $MPB(x)=300/x$ and $x$ takes only integer values, then he will choose to purchase just ...
2
votes
0answers
182 views

Competitive prices, tax and lump sum cash transfer in case of externalities

An economy is made up of two people. The utility functions are $$u_1(x_{11},x_{12}) = x_{11}x_{12}$$ $$u_2(x_{21},x_{22}) = 2x_{21} + 2x_{22} −x_{11}$$ The initial endowments are $ω_1 = (1,0)$ and $...
2
votes
2answers
87 views

Is loss in tax revenue a negative externality?

I was thinking about how online gambling could cause numerous governments to face a reduction in tax revenue from conventional gambling, upon which taxes do apply in most countries. If governments ...
1
vote
1answer
154 views

Relationship between the Tragedy of the Commons and negative externalities?

I've read that the tragedy of the commons can be seen as a negative externality. That is, $MSC > MPC$. However, I'm having trouble understanding why the supply curve actually shifts downwards due ...
1
vote
2answers
41 views

external benefit confusion

I'm a little confused by the following question and answer provided by MRU: Fruit farmers pay beekeepers for their honeybees’ pollination services. Honeybees provide an external benefit to fruit ...
1
vote
1answer
629 views

Who pays externalities?

Suppose the state raises taxes in order to internalise externalities. Doesn't the consumer have to pay the additional external costs then, because the prices are raised due to the taxes?
1
vote
1answer
48 views

Calculating optimal level of negative externality

I am trying to solve the following question(s): Let $h \geq 0$ represent a negative externality of a firm's production on one (representative) consumer. The consumer has a quasi-linear utility ...
1
vote
1answer
70 views

I don't understand how a graph would look like for this situation

If there is a negative production externality of agriculture which is water wastage, and the government provides a 100% subsidy to the farmers so they can buy irrigation gadgets to reduce water ...
1
vote
1answer
54 views

Question regarding social welfare in the presence of externalities

I am currently learning high school level economics and I do not understand how indirect taxation may increase net social welfare in the presence of negative production externality. This is because, ...
1
vote
2answers
267 views

Are risk-costs a form of external costs?

An example to make to question more clear: With the use of nuclear power plants come several risk-costs (the risk of a nuclear disaster). These costs aren't included in the energy price and there is ...
1
vote
1answer
30 views

Economic impact of employer ignorance to cliff effects?

Let's say an employee, Mike in Indiana, earns \$10.50 an hour. He gets a raise to \$13, but because he is no longer eligible for SNAP (food stamps), his net earnings actually go down. His wage has ...
1
vote
0answers
25 views

Resources on effects of transactions building in externalities

In theory, a nation could build the full economic cost of externalities, be they positive or negative, into a wide range of transactions. Are there any comprehensive resources on the effects this ...
1
vote
2answers
36 views

Is there an externality if someone buys all stock of some merchandise?

Is there an externality if someone buys all stock of some merchandise? On one hand, if they buy all of everything and there's still demand then they've taken it away from other people. On the other ...
1
vote
2answers
144 views

Welfare status when a positive externality is subsidised

I was wondering if there is still welfare loss for example there is a positive externality in production of a good and the government decides to subsidise the good? I think it does still have ...
1
vote
0answers
498 views

Private and Social Optimum with externality in this example

Firstly, I wanted to know if we may be consider as an externality, a situation such that a customer A bought a bike to a seller B, not properly checked - and which may provoke some accidents. ...
1
vote
1answer
333 views

Confusion regarding remedying negative externalities of consumption through taxation

This diagram in my textbook illustrates two solutions to a negative externality of consumption - here, the consumption of cigarettes. It states that MSC is shifted upwards by the specific tax. Since ...
0
votes
2answers
116 views

Is the use/consumption of natural resources considered an externality per se?

On a finite planet natural resources are rival goods by definition, i.e. if one agent uses/consumes a natural resource it becomes unavailable for other agents. Mankiw defines an externality as "the ...
0
votes
1answer
42 views

Externalities, Pigouvian Taxes and Wikipedia

It states on Wikipedia: A Pigovian tax (also called Pigouvian tax, after economist Arthur C. Pigou) is a tax imposed that is equal in value to the negative externality. The result is that the ...
0
votes
1answer
32 views

Why is the equilibrium network size can be less than the socially optimal size in networks w/ positive externalities for single system?

For Context, I am reading http://web.mit.edu/rpindyck/www/Courses/NetEx19.pdf. The chapter talks about network externalities in single system like fax machine, email, vaccinations for measles. ...