文档介绍：Chapter Thirty-Two
Externalities
Externalities
An externality is a cost or a benefit imposed upon someone by actions taken by others. The cost or benefit is thus generated externally to that somebody.
An externally imposed benefit is a positive externality.
An externally imposed cost is a negative externality.
Examples of Negative Externalities
Air pollution.
Water pollution.
Loud parties next door.
Traffic congestion.
Second-hand cigarette smoke.
Increased insurance premiums due to alcohol or o consumption.
Examples of Positive Externalities
A well-maintained property next door that raises the market value of your property.
A pleasant cologne or scent worn by the person seated next to you.
Improved driving habits that reduce accident risks.
A scientific advance.
Externalities and Efficiency
Crucially, an externality impacts a third party; . somebody who is not a participant in the activity that produces the external cost or benefit.
Externalities and Efficiency
Externalities cause Pareto inefficiency; typically
too much scarce resource is allocated to an activity which causes a negative externality
too little resource is allocated to an activity which causes a positive externality.
Externalities and Property Rights
An externality will viewed as a purely modity.
modity is purely public if
it is consumed by everyone (nonexcludability), and
everybody consumes the entire amount of modity (nonrivalry in consumption).
. a broadcast television program.
Inefficiency & Negative Externalities
Consider two agents, A and B, and modities, money and smoke.
Both smoke and money are goods for Agent A.
Money is a good and smoke is a bad for Agent B.
Smoke is a purely modity.
Inefficiency & Negative Externalities
Agent A is endowed with $yA.
Agent B is endowed with $yB.
Smoke intensity is measured on a scale from 0 (no smoke) to 1 (maximum concentration).
Inefficiency & Negative Externalities
OA
1
0
Smoke
mA
yA
Money and smoke are both goods for Agent