Social Externalities and Economic Analysis

Ravi Kanbur, Marc Fleurbaey and Brody Viney

No 15179, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper considers and assesses the concept of social externalities through human interdependence, in relation to the economic analysis of externalities in the tradition of Pigou and Arrow, including the analysis of the commons. It argues that there are limits to economic analysis. Our proposal is to enlarge the perspective and start thinking about a broader framework in which any pattern of influence of an agent or a group of agents over a third party, which is not mediated by any economic, social, or psychological mechanism guaranteeing the alignment of the marginal net private benefit with marginal net social benefit, can be attached the “externality†label and be scrutinized for the likely negative consequences that result from the divergence. These consequences may be significant given the many interactions between the social and economic realms, and the scope for spillovers and feedback loops to emerge. The paper also establishes a tentative and probably incomplete list of possible internalizing mechanisms for externalities under this broader framework, which includes: pricing and monetary incentives; altruism and solidarity; moral norms; reciprocity and mutual monitoring; centralized cooperative decision-making; and merger. There are clear reasons why the pricing mechanism is not appropriate in some cases. A more difficult question to answer is what factors determine which of the mechanisms is the appropriate one to rely on in a given sphere of relations and activities. The object of the paper is to encourage research and contributions from all the relevant disciplines of social sciences on the pervasive human interdependence that the notion of social externalities tries to capture.

Keywords: Externalities; Commons; Human interdependence; Social externalities; Internalizing mechanisms; Ethical principles (search for similar items in EconPapers)
JEL-codes: A12 A13 B31 D02 D62 D63 H23 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-hme, nep-hpe and nep-net
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Related works:
Working Paper: Social externalities and economic analysis (2021)
Working Paper: Social externalities and economic analysis (2021)
Working Paper: Social Externalities and Economic Analysis (2020)
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