The Internalization of External Effects

Hans Wiesmeth
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Hans Wiesmeth: TU Dresden, Faculty of Business and Economics

Chapter Chapter 6 in Environmental Economics, 2022, pp 97-122 from Springer

Abstract: Abstract Environmental or external effects are not sufficiently integrated into the market system, leading therefore to “market failure” in the sense of an inefficient market equilibrium. The “internalization” of external effects intends to restore efficiency and reestablish optimality of the equilibrium allocation. Since external effects signal missing markets, the main idea to be examined in this chapter is the immediate establishment of “artificial” markets, thereby directly “completing” the market system, or the assignment of “property rights” to the environmental commodities concerned. The various tools to achieve this task are formally related.

Date: 2022
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DOI: 10.1007/978-3-031-05929-2_6

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