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Pricing externalities has become such a common comment. Does anyone know good examples (family led also, but successful mostly) of pricing externalities? I me

Pricing externalities has become such a common comment. Does anyone know good examples (family led also, but successful mostly) of pricing externalities? I mean the alternative is regulation and/or legislation. Those work pretty well when a reasonable (ie production still happens) of harmful processes/methods. Eg banning CFCs in certain products. I know of examples where these were deployed. Tldr: what is the best, big example of a real, functional price system for "externalities?" I don't want to jump to conclusions, but it feels like this line of thinking is similar to state "retraining" to deal with unemployment due to economic changes. Very popular rhetorically, but very few encouraging examples.

TazeTSchnitzel 7y ago
I think we hear a lot of them but don't see them in practice because it would reduce profits. It's like any other solution to a problem of capitalism. Regarding regulation: something like a carbon tax is arguably pricing-in of an externality, but mandated by the government. That's actually what I think of when I suggest this, because I don't expect captialist actors to deal with these problems without being forced to somehow. In the free market, if an externality can be ignored to gain a competitive advantage, it will be.
- dalbasal 7y ago
  That's what I meant, except a mature, existing example. Carbon tax is the biggest question on the table. A lot of economists like it because theory. I'm skeptical, tbh, even of quasi-dynamic versions (like taxing fuel), and I tend to think taxes/subsidies (for example) on the purchase of vehicles would work better. Open to have my mind changed though, hence the question. Where have laws been used to successfully create externality price system?
  - shawnz 7y ago
    So rather than a cost proportional to how much waste you actually create, you'd rather have it be an equal tax on all drivers? That would eliminate the whole benefit of a carbon tax for middle class: If you're just driving to work every day then you shouldn't have to pay as much as the people and organizations who are creating substantially more waste than you are. I think this approach would ostracize drivers even worse than current approaches.
    - dalbasal 7y ago
      I'm not proposing anything, just discussing. To me, the first question is "will this work?" not "is this just/fair." Fairness and justice have to come in too, but the first question to ask if you're deciding about creating a price system is "can we?" We can obviously do fuel taxes. We do. That correlates pretty directly to emissions (within the domain of driving), but... we have experience here. We know that the demand elasticity to price is low in the long term and extremely low in the short term. Ie, You need a very big/painful tax to achieve a relatively small decline in emissions. There are questions of fairness/justice in all scenarios. Proportionality to waste is one issue. Proportionality to income is another. Different people will have different perspectives. But, before we even get to those, the question to answer is "what's our incentive?" Which (imo)needs to be answered in terms of reduced emission volume.
  - mechagodzilla 7y ago
    To directly answer your question, at least in the US, waste removal is something we’ve largely managed to handle this way. For the most part, almost no one burns their trash, or dumps it in rivers/oceans/lakes, or on the street, all of which are common practices historically (and still practice elsewhere, unfortunately). We have rules about how landfills need to be managed, we pay companies to haul it away and dump it (either through property taxes or directly paying a waste company). Notably, we are not doing this when it comes to CO2, we’re still just dumping it in the common atmosphere even though the costs to everyone will be absurdly high.
  - tim333 7y ago
    There have been a number of attempts at carbon pricing. One example is the UK >In 2013, the UK became the first EU country to introduce a carbon price floor, now set at £18 a tonne Some results: >In 2012, the UK ranked 20th out of a list of 33 rich countries in terms of low-carbon electricity use. In 2017, it jumped to 7th. No other country has ever climbed up the rankings so quickly, according to a study by Imperial College London. and >UK power from green energy set to surpass fossil fuels in 2019 so it seems to be working at least somewhat. But: > the UK measure has come under mounting pressure from troubled steel companies and other heavy power users who claim green levies make electricity more expensive, giving international rivals a competitive advantage. So overall it seems successful but it's complicated. A lot of other schemes also seem to have complicated effects so it's hard to say yeah it's all good but overall they are probably an improvement on doing nothing.
wffurr 7y ago
The cost of regulatory compliance is the way to price in externalities. The other option is a lawsuit after the damage is done.
- dalbasal 7y ago
  That's not quite "pricing."
  - specialist 7y ago
    aka the cost of doing business, overhead
  - wffurr 7y ago
    I'm not sure how else one "prices" an externality. Require the company to clean up after itself - that costs money, the company then internalizes that cost into their operating structure and the cost of their products.
TeMPOraL 7y ago
> I mean the alternative is regulation and/or legislation. This isn't an alternative, this is precisely how you price in externalities. No company in a competitive market will do it of its own volition, when it has no reason to (no punishment) and every reason against (competition). Looking from a different perspective: an externality happens when a transaction between two parties has a hidden third party that is made to pay the price without gaining anything from it. That third party usually is "society at large", or "some subpopulation within society at large". The role of the government is to be a representative of the society. A regulatory measure like e.g. carbon tax is essentially the government stepping in on behalf of the society and saying "if you want me to accept all this negative value, you have to compensate me for it fairly". It's a proper market mechanism.
adrianN 7y ago
Cars pay road tax to pay for maintenance. House owners pay property taxes to pay for infrastructure maintenance.
specialist 7y ago
Sin taxes might meet your criteria. Many jurisdictions use revenue from cigarette taxes for good cause. Building codes are also a pretty good example. A complimentary strategy is performance standards. A carrot (incentive) to regulatory sticks.

TazeTSchnitzel 7y ago

I think we hear a lot of them but don't see them in practice because it would reduce profits. It's like any other solution to a problem of capitalism. Regarding regulation: something like a carbon tax is arguably pricing-in of an externality, but mandated by the government. That's actually what I think of when I suggest this, because I don't expect captialist actors to deal with these problems without being forced to somehow. In the free market, if an externality can be ignored to gain a competitive advantage, it will be.

dalbasal 7y ago
That's what I meant, except a mature, existing example. Carbon tax is the biggest question on the table. A lot of economists like it because theory. I'm skeptical, tbh, even of quasi-dynamic versions (like taxing fuel), and I tend to think taxes/subsidies (for example) on the purchase of vehicles would work better. Open to have my mind changed though, hence the question. Where have laws been used to successfully create externality price system?
- shawnz 7y ago
  So rather than a cost proportional to how much waste you actually create, you'd rather have it be an equal tax on all drivers? That would eliminate the whole benefit of a carbon tax for middle class: If you're just driving to work every day then you shouldn't have to pay as much as the people and organizations who are creating substantially more waste than you are. I think this approach would ostracize drivers even worse than current approaches.
  - dalbasal 7y ago
    I'm not proposing anything, just discussing. To me, the first question is "will this work?" not "is this just/fair." Fairness and justice have to come in too, but the first question to ask if you're deciding about creating a price system is "can we?" We can obviously do fuel taxes. We do. That correlates pretty directly to emissions (within the domain of driving), but... we have experience here. We know that the demand elasticity to price is low in the long term and extremely low in the short term. Ie, You need a very big/painful tax to achieve a relatively small decline in emissions. There are questions of fairness/justice in all scenarios. Proportionality to waste is one issue. Proportionality to income is another. Different people will have different perspectives. But, before we even get to those, the question to answer is "what's our incentive?" Which (imo)needs to be answered in terms of reduced emission volume.
- mechagodzilla 7y ago
  To directly answer your question, at least in the US, waste removal is something we’ve largely managed to handle this way. For the most part, almost no one burns their trash, or dumps it in rivers/oceans/lakes, or on the street, all of which are common practices historically (and still practice elsewhere, unfortunately). We have rules about how landfills need to be managed, we pay companies to haul it away and dump it (either through property taxes or directly paying a waste company). Notably, we are not doing this when it comes to CO2, we’re still just dumping it in the common atmosphere even though the costs to everyone will be absurdly high.
- tim333 7y ago
  There have been a number of attempts at carbon pricing. One example is the UK >In 2013, the UK became the first EU country to introduce a carbon price floor, now set at £18 a tonne Some results: >In 2012, the UK ranked 20th out of a list of 33 rich countries in terms of low-carbon electricity use. In 2017, it jumped to 7th. No other country has ever climbed up the rankings so quickly, according to a study by Imperial College London. and >UK power from green energy set to surpass fossil fuels in 2019 so it seems to be working at least somewhat. But: > the UK measure has come under mounting pressure from troubled steel companies and other heavy power users who claim green levies make electricity more expensive, giving international rivals a competitive advantage. So overall it seems successful but it's complicated. A lot of other schemes also seem to have complicated effects so it's hard to say yeah it's all good but overall they are probably an improvement on doing nothing.

wffurr 7y ago

The cost of regulatory compliance is the way to price in externalities. The other option is a lawsuit after the damage is done.

dalbasal 7y ago
That's not quite "pricing."
- specialist 7y ago
  aka the cost of doing business, overhead
- wffurr 7y ago
  I'm not sure how else one "prices" an externality. Require the company to clean up after itself - that costs money, the company then internalizes that cost into their operating structure and the cost of their products.

TeMPOraL 7y ago

> I mean the alternative is regulation and/or legislation. This isn't an alternative, this is precisely how you price in externalities. No company in a competitive market will do it of its own volition, when it has no reason to (no punishment) and every reason against (competition). Looking from a different perspective: an externality happens when a transaction between two parties has a hidden third party that is made to pay the price without gaining anything from it. That third party usually is "society at large", or "some subpopulation within society at large". The role of the government is to be a representative of the society. A regulatory measure like e.g. carbon tax is essentially the government stepping in on behalf of the society and saying "if you want me to accept all this negative value, you have to compensate me for it fairly". It's a proper market mechanism.

adrianN 7y ago

Cars pay road tax to pay for maintenance. House owners pay property taxes to pay for infrastructure maintenance.

specialist 7y ago

Sin taxes might meet your criteria. Many jurisdictions use revenue from cigarette taxes for good cause. Building codes are also a pretty good example. A complimentary strategy is performance standards. A carrot (incentive) to regulatory sticks.