for A-plus writer
fars_3
externalities.docxgregory velazco y trianosky
california state university, northridge
spring 2014
externalities
1. Definition of externality: a cost created by a company’s operation that, in a free market, does not appear on the company’s books.
polluted water caused by coal mining is one example
2. Several particularly difficult types of externalities
A. “Tragedy of the Commons”: individual pursuit of self-interest is collectively self-defeating; but the cost of individual pursuit of self-interest is not borne to any great extent by any individual company (e.g. overfishing in the North Sea)
moral of the story may be that forced agreement and forced follow-through are required to solve the problem (compare Joseph Stiglitz’s comment about the pervasiveness of externalities and how it creates problems for free markets in Wikipedia article on him)
B. Unpriced Natural Capital: natural resources that are consumed by corporations that do not pay for their use (see David Roberts, “None of the world’s top industries would be profitable if they paid for the natural capital they use,” http://grist.org/business-technology/none-of-the-worlds-top-industries-would-be-profitable-if-they-paid-for-the-natural-capital-they-use/ )
