The importance of externalities
The Importance of Externalities
Our federal, state, and local governments are challenged each day with producing specific incentives that help boost growth in our economy, help protect our environment, and the safety of our well being. These challenges can often be achieved by the government stepping in and dealing with externalities. Externalities are effects on those not involved in the market but have can have a significant impact on everyone. “When an externality – the gap between the private cost and the social cost of some behavior – is large, individuals have an incentive to do things that make them better off at the expense of others.” (Wheelan, p.55) There are positive and negative externalities. When negative externalities are present, taxes can actually make markets more efficient for society because it supplies the funds necessary to handle the issue(s). When positive externalities are present, subsidies can make markets more efficient for society. Some activities possess both positive and negative externalities which sometimes council each other out so there isn’t much that can be done.
Dealing with Negative externalities has become increasing important as they shape our future in not only our economy but also in our environment. “Externalities are at the root of all kinds of policy issues, from the mundane to those that literally threaten the planet”(Wheelan, p.56) Most scientist would agree that one of the major issues that threatens the plant today is Global warming. Global warming is a difficult eternality to deal with because it is a Global problem not just a regional problem, therefore in order to address this issue everyone must play by the same rules. “A steel plant in Pennsylvania emits CO2 that may one day cause flooding in Bangladesh. (Meanwhile, acid rain caused by U.S. emissions is already killing Canadian forest.)”(Wheelan, p.58) This is just one example of many that governments are work to
Our federal, state, and local governments are challenged each day with producing specific incentives that help boost growth in our economy, help protect our environment, and the safety of our well being. These challenges can often be achieved by the government stepping in and dealing with externalities. Externalities are effects on those not involved in the market but have can have a significant impact on everyone. “When an externality – the gap between the private cost and the social cost of some behavior – is large, individuals have an incentive to do things that make them better off at the expense of others.” (Wheelan, p.55) There are positive and negative externalities. When negative externalities are present, taxes can actually make markets more efficient for society because it supplies the funds necessary to handle the issue(s). When positive externalities are present, subsidies can make markets more efficient for society. Some activities possess both positive and negative externalities which sometimes council each other out so there isn’t much that can be done.
Dealing with Negative externalities has become increasing important as they shape our future in not only our economy but also in our environment. “Externalities are at the root of all kinds of policy issues, from the mundane to those that literally threaten the planet”(Wheelan, p.56) Most scientist would agree that one of the major issues that threatens the plant today is Global warming. Global warming is a difficult eternality to deal with because it is a Global problem not just a regional problem, therefore in order to address this issue everyone must play by the same rules. “A steel plant in Pennsylvania emits CO2 that may one day cause flooding in Bangladesh. (Meanwhile, acid rain caused by U.S. emissions is already killing Canadian forest.)”(Wheelan, p.58) This is just one example of many that governments are work to
Cited: Wheelan, C. (2002). Naked Economics: Undressing the Dismal Science. New York, New York: W. W. Norton and Company Publishers The Holy Bible – NIV