How People Begin Internalize Externalities and Its Consequences to Identity
The costs and benefits can be both private—to an individual or an organization—or social, meaning it can affect society as a whole.
“spillover”) of an economic transaction is an impact on a party that is not directly involved in the transaction. In such a case, prices do not reflect the full costs or benefits in production or consumption of a product or service. A positive impact is called an external benefit, while a negative impact is called an external cost. Producers and consumers in a market may either not bear all of the costs or not reap all of the benefits of the economic activity. For example, manufacturing that causes air pollution imposes costs on the whole society, while fireproofing a home improves the fire safety of neighbours. In a competitive market, the existence of externalities can cause distortions in the production and consumption of social goods, and in the overall costs and benefits to society (defined as the sum of the economic benefits and costs for all parties involved). To continue with the pollution example, the costs of treating the negative effects of pollution may well exceed the value of the manufacturer’s production, resulting in a net cost to society. And, even if effective pollution controls were available that would raise overall benefits to society, the manufacturer may still lack incentives to invest in them — resulting in the under-production of clean air. Incentives can be realigned, for example, by regulation. Costs can be imposed on organizations for failing to install effective pollution controls. But such incentives can, in themselves, also introduce negative externalities if the costs are excessive or fail to be effective in reducing pollution and its negative impact. This theory can be applied to organizations that handle personal information.
Third, the question of legitimacy is connected by the author to the question of “conventional measurements of performance” and of indicators used as a basis for public decisions impacting the environment (Kapp, 1950: vii). Kapp stresses the epistemic complexity characterizing environmental damage. This implies the need to take into account a wide variety of indicators in order to decide on environmental issues. Besides economic indicators, social and natural indicators have to be considered as a knowledge base for the decision. Still, no easy synthesis is possible, because the different kinds of social and environmental cost are incommensurable. Economic tools based on monetary equivalences cannot offer a synthesis of the actual costs-benefits trade-off really at stake. The complexity of the social and environmental implications of decisions impacting the environment can thus not be expressed through “synthetic measures”, which usually hide forms of power abuse (apud Luzzati, 2005: 11).
Running a business as if it were a part of a continuous closed cycle creates new opportunities. Looking for projects that reduce energy and material consumption represent significant savings for the firm, that are often less risky than investments in additional production and good for the environment.
Kapp, Karl William (1950). “Political Economy and Psychology: The survival of Hedonism and the Research Tasks of the Future”. Kyklos, 3, 205-29.
Martinez-Alier, Joan (1987), Ecological Economics: Energy, Environment and Society. Oxford, UK: Blackwell.
Luzzati, Tommaso (2005), Leggere Karl William Kapp (1910-1976), “Per una visione unitaria di economia, società e ambiente”, Discussion Papers del Dipartimento di Scienze Economiche–Università di Pisa, 56, 1-30.