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The History of Pollution 'Externalities' in Economic Thought

Clive Spash

SRE-Disc from Institute for Multilevel Governance and Development, Department of Socioeconomics, Vienna University of Economics and Business

Abstract: Today, environmental economics is the response of the neoclassical economic school to the ecological crisis, but at one time its leading contributors regarded it as a revolutionary development that would change the conduct and content of economics as a discipline. Understanding and addressing environmental pollution was core to that potential paradigm shift. In tracing the history of conceptualising pollution as an externality and market failure this paper covers the development of ideas by Marshall, Pigou, Pareto, Coase, Stigler, Samuelson, Ciciacy-Wantrup and Kapp. Pollution externality theory is shown to have incorporated an elitist ethics and liberal market ideology. As a market failure pollution was deemed a minor correctible error of the price system. Monetary valuation of social and environmental harm became the means of justifying optimal levels of pollution. Neoliberal theories of spreading property rights further watered down potential interventionist aspects. Bio-physical realism, in the work of Kneese, Ayres and dÂ’Arge, and social realism in KappÂ’s theory of cost shifting were lost once environmental economics adopted a deductivist mathematical formalism. KappÂ’s alternative theory is based on a classic institutionalists economic understanding of cost shifting and power relations. It advocates a public policy response in the form of objective social minima achieved via regulation and planning. This theory has until now been successfully supressed to prevent a potential revolutionary paradigm shift in economic price theory

Keywords: externalities; market failure, cost shifting; price theory; pollution; Pigou; Coase; Kapp; paradigm shift; environmental economics, neoclassical economics; institutional economics, neolibera (search for similar items in EconPapers)
JEL-codes: A13 B2 B55 D61 D62 H21 H23 P16 P18 P48 Q5 Q52 Q53 Q57 Q58 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2021
New Economics Papers: this item is included in nep-ene, nep-env, nep-hme, nep-hpe, nep-pke and nep-reg
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