Top Page | Upper Page | Contents | About This Site | JAPANESE

Inclusion of Externality

Inclusion is the main theorem in Narrow Environmental Economics.

Externality and External Diseconomics

Externality is a key point to link ecology and economy. We can get resources from the environment without a market because the environment has no price. This is externality.

The problem happened by externality is external diseconomics. The cost caused by external diseconomics is called "social cost".

Tragedy in Commons

A common is a place where everyone uses. Tragedy in Commons is an example of externality. The story is below.

"The man kept his cows in a common. He increased his cows. Then the speed of increasing of cows is faster than that of grasses. Cows ate all of grasses. No one could keep cows there."

This story is not for grasses but water, air, fishes and so on.

Psychology and Environmental Ethics

Environmental Economics try to solve problems of externality by economic approach. But problems of externality happen from human mind.

Environmental Economics also consider mind problems with Environmental Ethics. But this consideration is often in the range of value (money) problems.

There are other approaches for the mind problems. For example, Environmental Psychology and Social Psychology.

Inclusion of Externality

If externality is the cause that we cannot control the environment by economic method, the solution is inclusion. Some people believe that "If inclusion is successfully done, the principle of the market prevents environmental problems automatically."

Principle of the Market

The principle of the market is also called "unseen hands of God". This principle is for example, "High value thing is high price.", "High price thing is not being sold well." It is considered that the market is controlled naturally without political power.

NEXT Methods of Inclusion