Professional Documents
Culture Documents
By:
Brian P. Simpson National university
Thus, the writer of this article will avoid the errors committed by the above writers and goes deeper than just a political and economic analysis of externality theory.
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 economic stagnation and even regression. Why? Example of positive externalities: the large number of payments that would have to be made to those responsible for innovations that are easy to copy but that are not eligible for patent or copyright protection. Example of negative externalities: the original Henry Ford (Ford car manufacturer towards horse
The writer pointed out the only ones for which people should be compensated are those that cause demonstrable physical harm to a person or his property and can be traced back to the actions of an individual or a group of individuals working in concert. In order to do this, one must have well defined and -protected property rights. Example: -farmer (whose land is upstream) vs. the downstream land owner -steel mills vs. quality of air
Negative variations: The comparison of Henry Ford case with the downstream landowner. This is a fundamental political distinction that cannot be forgotten when determining whether the government should act or not. It is a distinction that the concept externality leads people to ignore. Positive variations: The case of property owner against landscaper & passerby In general, when the government acts to eliminate positive external effects, it is violating someone's rights by expropriating money and subsidizing, or completely taking over the production of, the activity that creates the effect.
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 possibly might want to buy the good. A person that dresses nicely for a job interview. Beautiful and ugly people.
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.