Externalities Legal Definition

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The main cause of externalities is the misdefining of property rights. Ambiguous ownership of certain things can lead to a situation where some market participants begin to consume or produce more, while the part of the cost or benefit is inherited or received from an independent party. Environmental goods, including air, water, and wildlife, are the most common examples of things with ill-defined property rights. Externalities were once the responsibility of local governments and those affected by them. For example, municipalities were responsible for paying for the impact of pollution from a factory in the area, while residents were responsible for their health care costs due to the pollution. After the late 1990s, governments enacted laws that imposed the costs of externalities on the producer. This law has increased the costs that many businesses have passed on to consumers, making their goods and services more expensive. Ecological economics criticizes the concept of externality because there is not enough systems thinking and integration of different sciences into the concept. Ecological economics is based on the idea that the assumption of neoclassical economics (NCE) that the environmental costs and benefits of the environment and community cancel each other out through “externalities” is not justified.

Joan Martinez Alier[65] shows, for example, that the mass of consumers is automatically excluded from the influence on the prices of raw materials, since these consumers are future generations who have not yet been born. The assumptions underlying future discounts, which assume that future commodities will be cheaper than current commodities, have been criticized by Fred Pearce[66] and the Stern Report (although the Stern Report itself uses discounting and has been criticized for this and other reasons by ecological economists such as Clive Spash). [67] Because of the negative effects of negative and positive externalities on market efficiency, economists and policymakers are working to solve the problem. The “internalization” of externalities is the process of adopting policies that would limit the impact of externalities on independent parties. As a rule, internalization is achieved through state intervention. The possible solutions are as follows: Id., p. 75. The court cited the case of Miles Labs, above No. 107 for the assertion that “costs or externalities are imposed on victims or society”, 1471.

Melillo v. City of New Haven, 732 A.2d 133 (Sup. Ct. Conn. 1999), the court denied that a withdrawal was due to airport noise, which the plaintiff characterized as externalities; District Intown Properties LP v. Dist. Columbia, 198 F.3d 874 (D.C. Cir. 1999), affirmed the consensus that historic preservation laws have led to positive externalities in protecting old buildings that some people value; R&Y, Inc.

v Municipality of Anchorage, 34 P.3d 289 (Sup. Ct. Alaska 2001), which held that a requirement for structural setback did not constitute income. These land-use restrictions do not cause worse externalities than transport, which suffers from increased commercial activity; It is not feasible. If all these conditions are met, private parties can negotiate to solve the problem of externalities. The second part of Coase`s theorem states that if these conditions apply, regardless of who owns the property rights, an effective Pareto result is achieved by negotiation. Some externalities are positive. Positive externalities occur when positive gains are made at both the private and social levels. Research and development (R&D) conducted by a company can be a positive externality. R&D increases a company`s private profit, but it also has the added benefit of increasing the overall level of knowledge within a company. Another common cause of externalities is the presence of transaction costs.

[44] Transaction costs are the costs of economic trade. Those costs prevent economic operators from carrying out an exchange that they should carry out. The cost of the transaction outweighs the benefits to the agent. If all mutually beneficial exchanges do not take place in a single market, that market is inefficient. Without transaction costs, agents would be able to freely negotiate and internalize all externalities. External effects often arise from ill-defined property rights. While property rights over things like objects, land, and money can be easily defined and protected, air, water, and wildlife often flow freely across personal and political boundaries, making it much more difficult to allocate property. This encourages agents to consume them without paying the full cost, resulting in negative externalities. Similarly, positive externalities result from ill-defined property rights. For example, a person who gets the flu shot may not have some of the herd immunity that this confers on society, so they may choose not to get vaccinated.

A government can levy taxes on goods or services that generate externalities. Taxes would prevent activities that impose costs on independent parties. Frank Knight also opposed government intervention as a solution to externalities. [58] He suggested that externalities could be internalized by privatizing relevant markets. He cites the example of congestion to illustrate his point. Congestion could be solved by taxing public roads. Knight shows that government intervention is useless if the roads were rather private. If the roads were privately owned, their owners could set tolls that would reduce traffic and thus congestion to an efficient level. This argument forms the basis of the transport balance. This argument assumes that two points are connected by two different highways. A highway is in poor condition, but wide enough to suit any traffic that wants to use it. The other is a much better route, but its capacity is limited.

Knight argues that if a large number of vehicles travel between the two destinations and have the freedom to choose between routes, they will be distributed in proportions so that the cost per unit of transportation is the same for each truck on both highways. That`s true, because if more trucks use the narrow road, traffic jams occur, and as congestion increases, it becomes just as profitable to use the worst highway. This solves the problem of externality without the need for taxes or government regulations. This does not mean that judges who used externality to strengthen their position deliberately made good use of the economy they knew was weak; Economists speak of externality as much as if it were a scientific concept that one could easily assume provides a solid theoretical justification for a desired legal outcome. IHC Health Plans, Inc. v. Commissioner of Internal Revenue, 325 F.3d 1188 (10th Cir. 2003), referring to the “positive externalities” generated by certain public goods; PSI Energy, Inc. v. United States, 59 Fed.Cl. 590 (Cl.

féd. 2004), which refers to the “positive externality” received by stowaways who receive public benefits without paying for services. Collective solutions or public policies are implemented to regulate activities with positive or negative externalities. A negative externality (also called “external costs” or “external diseconomy”) is an economic activity that negatively affects an independent third party. It can occur during the production or consumption of a good or service. [19] Pollution is called an externality because it imposes costs on people who are “external” to the producer and consumer of the pollutant. [20] Barry Commoner commented on the cost of externalities: In contrast, ecological economists such as Joan Martinez-Alier refer to a different reasoning. [70] Instead of assuming that a (new) form of capitalism is the best way forward, an older ecological critique of the economy challenges the idea of internalizing externalities to correct the current system. The work of Karl William Kapp[71] argues that the notion of “externality” is an abuse of language. [72] In fact, the modern commercial enterprise operates on the basis of the usual practice of transferring costs to others in order to make a profit. [73] Charles Eisenstein argued that this method of privatizing profits while socializing costs through externalities, shifting costs to the community, the natural environment, or future generations, is inherently destructive.

[74] Socio-ecological economist Clive Spash argues that the theory of externality wrongly assumes that ecological and social problems are minor deviations from an otherwise perfectly functional efficient economic system. [75] The internalization of a strange externality does nothing to solve the structural systemic problem and does not recognize the pervasive nature of these so-called “externalities.” It is precisely for this reason that heterodox economists advocate a heterodox theory of social costs in order to effectively prevent the problem through the precautionary principle. [76] Philadelphia Electric Co. v. Hercules, Inc., 762 F.2d 303 (3rd Cir. 1985); The court cited an article in 314 with the word externalities in the title. Cottle v Superior Court, 3 Cal.App.4th 1367 (Ct. App., 2 Dist., Cal. 1992); The court briefly discussed the divergence of private and social costs, citing an article on externality in 1402. In neither case did a brief discussion of the externality seem to have influenced the outcome. This is why I and the students are so baffled by this description of the 8th edition of Property, by far the best-selling text in law school: Frank notes that treating positional externalities like other externalities could lead to “intrusive economic and social regulation.” [40] He argues, however, that there are less intrusive and more effective ways to “limit the cost of cascading spending” – i.e., the hypothetical increase in spending by middle-income families beyond their resources “due to the indirect effects associated with increased spending by high-income families”; One such method is income tax. [40] The usual economic analysis of externalities can be illustrated using a standard graph of supply and demand if the externality can be measured in terms of money.