35
increased the joint economic-environmental system’s capacity to deliver human satisfactions (Common and Stagl 2005).
3.2.3 Market Externalities, Tragedy of the Commons
and Neoliberal Environmentalism
Externality is the economic activity of an economic entity that has positive or negative effects on other entities without the emergence of market relations between
them. This means that costs and revenues are passed on to others free of charge
(Šálka et al. 2008). There is a standing scientific/economic dispute over internalising external cost and benefits. Simply put, prices should be adjusted with a tax or
charge so that the buyer of said goods or services causing the external cost is obliged
to pay for it (Beder 1996; Nadeau 2008).
Arthur Pigou, student of Alfred Marshall, dealt with externalities and published
The Economics of Welfare in 1920. The book outlined his vision of economics as a
toolkit for improving the lives of the poor. Pigou was open to different ways of
tackling externalities. He introduced ‘bounties and taxes’ as the forms of intervention. This type of intervention is known as a Pigouvian tax and became the favourite
idea of policymakers especially in the debate over global warming. The criticism of
this approach is that the impact of a Pigouvian tax depends on the level of competition in the market it is affecting (e.g. case of monopoly).
In The Problem of Social Cost (1960), Ronald Coase considered externalities as
a problem of ill-defined property rights. He was interested in how property rights
are (or should be) allocated and exchanged. The Coase theorem states that ‘if trade
in an externality is possible and there are no transaction costs, bargaining will lead
to an efficient outcome regardless of the initial allocation of property rights’. It is
another approach on how to solve the problem of externalities compared to the
Pigouvian tax. It means that if it were feasible to assign such rights properly, people
could be left to bargain their way to a good solution without the need for a heavyhanded tax.
Beder (2011) states that the rhetoric of internalisation reinforces the premise that
the central environmental problem is the failure to ‘value’ the environment and that
markets can adequately deal with this problem when environmental costs are incorporated into market prices through mechanisms such as fees, charges and taxes.
Here, the optimal level of pollution is the level at which the costs to the company of
cleaning up the pollution equal the cost of environmental damage caused by that
pollution. If polluters are paying to eliminate the problem, the community is no
worse off because it is being compensated by the firm for the damage through the
payments of the tax or charge to the government. So, the payments can be used to
correct the environmental damage they cause. Beder clarifies that this is where theory and reality diverge and where economists’ lack of interdisciplinary knowledge
becomes evident because there is considerable doubt about whether monetary payments can correct environmental damage in many circumstances.
3 Economic Dimensions of Environmental Citizenship
increased the joint economic-environmental system’s capacity to deliver human satisfactions (Common and Stagl 2005).
3.2.3 Market Externalities, Tragedy of the Commons
and Neoliberal Environmentalism
Externality is the economic activity of an economic entity that has positive or negative effects on other entities without the emergence of market relations between
them. This means that costs and revenues are passed on to others free of charge
(Šálka et al. 2008). There is a standing scientific/economic dispute over internalising external cost and benefits. Simply put, prices should be adjusted with a tax or
charge so that the buyer of said goods or services causing the external cost is obliged
to pay for it (Beder 1996; Nadeau 2008).
Arthur Pigou, student of Alfred Marshall, dealt with externalities and published
The Economics of Welfare in 1920. The book outlined his vision of economics as a
toolkit for improving the lives of the poor. Pigou was open to different ways of
tackling externalities. He introduced ‘bounties and taxes’ as the forms of intervention. This type of intervention is known as a Pigouvian tax and became the favourite
idea of policymakers especially in the debate over global warming. The criticism of
this approach is that the impact of a Pigouvian tax depends on the level of competition in the market it is affecting (e.g. case of monopoly).
In The Problem of Social Cost (1960), Ronald Coase considered externalities as
a problem of ill-defined property rights. He was interested in how property rights
are (or should be) allocated and exchanged. The Coase theorem states that ‘if trade
in an externality is possible and there are no transaction costs, bargaining will lead
to an efficient outcome regardless of the initial allocation of property rights’. It is
another approach on how to solve the problem of externalities compared to the
Pigouvian tax. It means that if it were feasible to assign such rights properly, people
could be left to bargain their way to a good solution without the need for a heavyhanded tax.
Beder (2011) states that the rhetoric of internalisation reinforces the premise that
the central environmental problem is the failure to ‘value’ the environment and that
markets can adequately deal with this problem when environmental costs are incorporated into market prices through mechanisms such as fees, charges and taxes.
Here, the optimal level of pollution is the level at which the costs to the company of
cleaning up the pollution equal the cost of environmental damage caused by that
pollution. If polluters are paying to eliminate the problem, the community is no
worse off because it is being compensated by the firm for the damage through the
payments of the tax or charge to the government. So, the payments can be used to
correct the environmental damage they cause. Beder clarifies that this is where theory and reality diverge and where economists’ lack of interdisciplinary knowledge
becomes evident because there is considerable doubt about whether monetary payments can correct environmental damage in many circumstances.
3 Economic Dimensions of Environmental Citizenship