Using the Environment—An Allocation Problem
Technological externalities are nonmarket interdependencies among economic activities. Consider, for example, two production activities i and j. An externality exists if the output Q i in activity i depends on the output Q j or on the inputs R j of the other activity.
KeywordsPublic Good Allocation Problem Abatement Cost Negative Externality Damage Function
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- 1.Th. Veblen, The Theory of the Leisure Class ( London: Allen and Unwin, 1925 ).Google Scholar
- 2.The analysis of externalities clearly benefits from the explicit introduction of the technological system by which economic activities are interrelated. More specifically, technological externalities imply a technological system; an interdependence via markets including future markets does not constitute a technological, but a “pecuniary externality”.Google Scholar
- 3.In the following text, we use the term environmental quality for simplifying purposes, although the public good environment definitively has a quantitative characteristic, for instance pounds of oxygen consumed.Google Scholar
- 4.Compare K. Lancaster, “Change and Innovation in the Technology of Consumption,” in: The American Economic Review ( Menasha, Wis.: American Economic Association, 1966 ), pp. 14–23.Google Scholar
- 5.The implications of the transformation of mass into energy in the mass-balance concept are not discussed. Also compare the problem of entropy, see Faber et al. (1983).Google Scholar