An Economical, Political and Philosophical Analysis of Externalities

7/29/2019 An Economical, Political and Philosophical Analysis of Externalities.

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SPA 504: Economics for the PublicSector

Article Review:An Economical, Political and Philosophical

Analysis of Externalities.By:Brian P. SimpsonNational university


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Purpose of the article:

To show the economically, politicallyand epistemologically why externality

does not provide a valid critique of the

markets To show why the market actually

succeeds with respect to externalities

To reveal the logical implications ofexternality theory

To provide powerful criticisms on the

externalities theory


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Objectives of the article:

This article will ensure that the readerwill be familiar with the economics,

political and epistemological

analysis of externality theory This article also will assist the reader

to understand the nature of

externality theory


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Method used in the article:

The writer of this article referred to somenoted writers such as Ludwig Von Mises,Murray Rothbard, Ronald Coarse, HaroldDemsetz and Richard Posner who already

provide an economic and political analysis ofexternality theory.

He agreed on what the other authors write on

their analysis only at one legitimate point

where the externality can be remedied byconstantly recognizing and protecting the

property rights.

He then address that most of the analysesrovided is inade uate and deficient.


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Method used in the article:

He critique most of the authors he referredfail to :I. Address the epistemological errors of

externality theory

II. Give the valid premise on their analysisIII. Explain the right idea of property rights

IV. Defines the sphere of responsibility forindividuals in much more details.

Thus, the writer of this article will avoidthe errors committed by the above writersand goes deeper than just a political andeconomic analysis of externality theory.


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The implications of externalities

and market failure: Too many goods will create (-)

externalities (the cost imposed on whoexperienced it did not take into

account) Example: steel manufacturers & the

people who breathes the dirty air

Too few goods will create (+)

externalities (the recipients do not payfor the benefits)

Example: beautiful garden/home &

passerby


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The politic and economic

implications of externalities: According to analysis referred by the writer, it is

assumed that negative externalities could be

corrected by tax and positive externalities could be

compensated by subsidy.

However, the writer claimed it would led to economicstagnation and even regression.

Why?

Example of positive externalities: the large

number of payments that would have to be made tothose responsible for innovations that are easy to

copy but that are not eligible for patent or copyright

protection.

Example of negative externalities: the originalHenr Ford Ford car manufacturer towards horse


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Negative externalities & its

solutions: The writer pointed out the only ones for

which people should be compensatedare those that cause demonstrablephysical harm to a person or his propertyand can be traced back to the actions of

an individual or a group of individualsworking in concert. In order to do this, one must have well

defined and -protected property rights.

Example:-farmer (whose land is upstream) vs. thedownstream land owner-steel mills vs. quality of air


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Positive externalities & its

solutions

The writer believe that individualsshould pay others only for benefitsthey voluntarily contract to receivefrom others.

He wrote Governmentforce neededto increase the supply of goods thatcreate positive externalities violates

the rights of individuals. Example:

-charity (donors & recipients)

-lighthouse & ship owners


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Deeper Analysis of the concept

externality: Negative variations: The comparison of Henry Ford case with the

downstream landowner.

This is a fundamental political distinction that cannot beforgotten when determining whether the government

should act or not. It is a distinction that the conceptexternality leads people to ignore.

Positive variations:

The case of property owner against landscaper &passerby

In general, when the government acts to eliminatepositive external effects, it is violating someone's rightsby expropriating money and subsidizing, or completelytaking over the production of, the activity that createsthe effect.


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Deeper Analysis of the concept

externality:The externality supposed to identify and

help one understand some significant

phenomenon, However, it turns out the

term identifies a phenomenon that is

meaningless and implies many absurdities.

Example:

Any good (such as loaf of bread): those

who bought good & those who possiblymight want to buy the good.

A person that dresses nicely for a job

interview.

Beautiful and u l eo le.


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Conclusion:

The writer believes that the concept of

externality should be discarded.

There are 2 valid arguments

presented by the writer which are:

1. It leads to greater confusion because

of the absurd implications of the

concepts.

2. Externality could led to false

conclusions and harmful actions.

Documents

An Economical, Political and Philosophical Analysis of Externalities