externalities. However, there is a potential that a positive outcome could be
generated leading to a positive externality. In the discussion of externalities, it
often assumed that market participants accept the externalities generated by their
actions as acceptable due to their focus on immediate gratification of their needs. For
the producer, this equates to externalizing the cost of disposal of waste products into
waterways and the air where no cost is directly borne to adversely impact profits but
qualitative costs are assessed that may impact the enjoyment and longevity of
multiple life forms and generations of human life. For the consumer, the externality
can be evaluated in the indifference to waste creation at the point of the consumption
decision or even the externalities associated with the production of the good or
service being purchased. In the case of the former, the cost of disposal of packaging
material is typically marginal to zero, relatively negligible, but disposal creates a
negative externality in the landfill, incinerator, or recycling plant that could have
been avoided with a thoughtful exercise of demand.
At present, the type of internalizing of externalities that has occurred has been
limited to quantifying the externality to an overt cost. However, to the extent that the
costs may remain unassessed and the market mechanism is not cognizant and
focused on the elimination of the externality-based cost, rather the minimization of
overall costs, this process has yielded suboptimal outcomes. For example, assume
that a firm produces ambient pollution as a result of incineration of waste. If a
governmental regulatory body institutes a fee or cost for pollution, effectively
charging the firm for the ability to pollute the air, the producer is able to delegate
responsibility for environmental stewardship to the price of pollution. Additionally,
depending on the price elasticity of demand for the service offered, the producer may
be able to not only transfer the costs now associated with polluting activity to the
consumer, but may also be able to maintain the pollution level. Assuming that the
consumer is inelastic, in this example the negative externality related to internalizing
the cost has not changed, instead only the responsibility of pollution has been
transferred to a cost, revenue to the regulating body has been generated, and the
consumer has suffered erosion in their overall disposable income and purchasing
power.
The same type of scenario exists with a permit trading program, where in effect
permits are issued for a specific amount of externality emission, allowing economic
agents to trade and thereby optimize through again cost minimization. However, the
cost minimization is founded on the presumption or delegation of the permit system
to fostering socially optimal outcomes, again, relieving the economic agent engaged
in the creation of the externality form being directly accountable for qualitative
actions. Additionally, the trading of permits assumes that optimal financial outcomes
equate to optimal environmental and social outcome due to the aggregated assessment of pollution. However, to the extent that pollution is not distributed evenly and
certain locations may have a disproportionate concentration, the permit systems fails
to generate a socially optimal outcome. This may be compounded by the impact of
inelasticity, which may allow for the transfer of costs of implementation of the
permit program to the economic agents the program was designed to protect.
2 The Role of Culture and Moral Responsibility in Facilitating a Sustainable. . .
27
generated leading to a positive externality. In the discussion of externalities, it
often assumed that market participants accept the externalities generated by their
actions as acceptable due to their focus on immediate gratification of their needs. For
the producer, this equates to externalizing the cost of disposal of waste products into
waterways and the air where no cost is directly borne to adversely impact profits but
qualitative costs are assessed that may impact the enjoyment and longevity of
multiple life forms and generations of human life. For the consumer, the externality
can be evaluated in the indifference to waste creation at the point of the consumption
decision or even the externalities associated with the production of the good or
service being purchased. In the case of the former, the cost of disposal of packaging
material is typically marginal to zero, relatively negligible, but disposal creates a
negative externality in the landfill, incinerator, or recycling plant that could have
been avoided with a thoughtful exercise of demand.
At present, the type of internalizing of externalities that has occurred has been
limited to quantifying the externality to an overt cost. However, to the extent that the
costs may remain unassessed and the market mechanism is not cognizant and
focused on the elimination of the externality-based cost, rather the minimization of
overall costs, this process has yielded suboptimal outcomes. For example, assume
that a firm produces ambient pollution as a result of incineration of waste. If a
governmental regulatory body institutes a fee or cost for pollution, effectively
charging the firm for the ability to pollute the air, the producer is able to delegate
responsibility for environmental stewardship to the price of pollution. Additionally,
depending on the price elasticity of demand for the service offered, the producer may
be able to not only transfer the costs now associated with polluting activity to the
consumer, but may also be able to maintain the pollution level. Assuming that the
consumer is inelastic, in this example the negative externality related to internalizing
the cost has not changed, instead only the responsibility of pollution has been
transferred to a cost, revenue to the regulating body has been generated, and the
consumer has suffered erosion in their overall disposable income and purchasing
power.
The same type of scenario exists with a permit trading program, where in effect
permits are issued for a specific amount of externality emission, allowing economic
agents to trade and thereby optimize through again cost minimization. However, the
cost minimization is founded on the presumption or delegation of the permit system
to fostering socially optimal outcomes, again, relieving the economic agent engaged
in the creation of the externality form being directly accountable for qualitative
actions. Additionally, the trading of permits assumes that optimal financial outcomes
equate to optimal environmental and social outcome due to the aggregated assessment of pollution. However, to the extent that pollution is not distributed evenly and
certain locations may have a disproportionate concentration, the permit systems fails
to generate a socially optimal outcome. This may be compounded by the impact of
inelasticity, which may allow for the transfer of costs of implementation of the
permit program to the economic agents the program was designed to protect.
2 The Role of Culture and Moral Responsibility in Facilitating a Sustainable. . .
27