文档介绍：Chapter 5 Externalities
Introduction
Externalities arise whenever the actions of one party make another party worse or better off, yet the first party neither bears the costs nor receives the benefits of doing so.
As we will see, this represents a market failure for which government action could be appropriate and improve welfare. (Recall the First Theorem and its two assumptions.)
Externalities can be negative (welfare reducing) or positive (welfare enhancing):
Acid rain, global warming, pollution, or a neighbor’s loud music are all negative externalities.
Research and development or asking good questions in class are positive externalities.
Consider global warming, a generally negative externality. Many scientists believe this warming trend is caused by human activity, namely the use of fossil fuels.
These fuels, such as coal, oil, natural gas, and gasoline produce carbon dioxide that in turn traps heat from the sun in the earth’s atmosphere, like a greenhouse.
Figure 1 shows the trend in warming over the last century.
Figure 1
This table shows the global temperature during the 20th century.
There has been a distinct trend upward in temperature
Although this warming trend has negative effects overall on earth, the distributional consequences vary.
In much of the United States, warmer temperatures will improve agricultural output and quality of life.
In Bangladesh, which is near sea-level, much of the country will be flooded by rising sea levels.
If you’re wondering why you, as an America, should care about Bangladesh, then you have identified the market failure that arises from externalities.
From your private perspective, you shouldn’t (care)!
EXTERNALITY THEORY
Externalities can either be negative or positive, and they can also arise on the supply side (production externalities) or the demand side (consumption externalities).
A negative production externality is when a firm’s production reduces the well-being of others who are pensated by the firm.
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