 Market Imperfections: Internalizing the ExternalitiesChapter 14 in Sustainability:Business and Investment Implications, 2023, pp 387-409 from World Scientific Publishing Co. Pte. Ltd. Abstract: This chapter introduces Part IV on Policy Implications of sustainability. It introduces the concept of market imperfections and externalities. It reviews the theoretical economic background and some empirical evidence on the concept of externalities which is key to understanding market imperfections related to sustainability issues (one entity pays while others get the benefit or bear the burden). It highlights the fact that market prices rarely factor in these externalities and that actors producing negative externalities do not always pay for them and that other actors bear the negative consequences (i.e., end up paying for them). The chapter highlights the trend that consumers, producers, and governments are starting to take production and market externalities much more seriously. Consumers more and more buy only products that are labeled organic, as they know that these products contain fewer pesticides that harm them and those that produce these products. Producers and investors understand that corporate social responsibility is not simply a buzzword that attracts consumers but that it does provide a value-added for the company. Employees are more motivated to work if they feel that they are needed and welcomed, and supply chains work more efficiently if every company down the chain gets a fair share. Products produced by motivated employees and manufactured with high-quality materials tend to last longer and are more appealing to consumers. Governments are understanding that they need to be careful in the way they introduce new policies, and they are starting to introduce these in a more subtle way. Some environmentally harmful industries, energy sources, technologies, or processes may become obsolete. The chapter concludes that although corporate social responsibility is the right way, it needs to be supplemented with more consumers who are less price-oriented, and it needs to be induced by governments that understand that maximizing the pie also requires dealing with these externalities. Keywords: Sustainability; Sustainability Risks and Opportunities; Sustainability: Business and Investment Implications; Sustainable Finance; Sustainable Investing; Impact Investing; Sustainable Entrepreneurship; ESG; Business Case for Sustainability; Investment Case for Sustainability; Introduction to Sustainability; Introduction Sustainable Finance; Introduction to Sustainable Investing; Introduction to ESG; Introduction to Impact Investing; Sustainability Handbook; Sustainability Textbook; Sustainable Business Textbook; Sustainable Business Handbook; Sustainable Finance Textbook; Sustainable Finance Handbook; Impact Investing Textbook; Risk Management & Sustainability; The Corporate Sustainability Spectrum; Business and Financial Implications of Climate Change; The Financial Case for Embedding Sustainability Core to Business Strategy; Corporate Sustainability & Financial Performance; Shareholder Engagement; The Pressing Needs For A Sustainable World; Scale-up; Impact Entrepreneur; Impact Entrepreneurship; Sustainability Science and Challenges; Internalizing the Externalities; The Role of Government; Fiscal Impact; Macro-economic Performance; Realism; Mission Creep; Single Issue Capture; GreenWashing; Whitewashing; Hidden Agendas; Transparency; and Competitiveness (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789811240928_0014 Ordering information: This item can be ordered from Access Statistics for this chapter More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd. |
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