Climate change is a negative externality, and the carbon emissions that generate it are easily targetable.
But it is possible that buying genuine luxuries imposes an externality of its own.
So Noah is correct that efficiently taxing a globally traded externality producing commodity does require global cooperation.
One externality that has been tested empirically did little to enhance the case for public spending on education.
More important, junk food is not itself the source of the externality the medical costs that arise from obesity.
And the standard economic answer to an externality it to impose a tax upon those who create it.
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That tax being equal to the cost of the externality they are imposing.
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It bears noting that externality theory in economics includes both negatives and positives: supplying energy permits untold and profound benefits.
Better to be tax an activity that generates an externality to raise this money than to tax income or capital gains.
Taxes on externalities will not equate to the harm of the externality.
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This is the classic way economists would deal with a negative externality.
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The externality in each firm's pricing the effect on demand for the other firm's product leads the firms to charge more than if they were acting as one.
In economics we would call this an externality: an effect on others that is not included in the calculations being made by those actually doing whatever it is.
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To be sure not all externality negatives are perfectly captured.
What carbon markets attempt to do is to price the environmental externality (emissions of greenhouse gases) so people making decisions have a truer picture of the full cost of their actions.
The externality argument is in many respects just a highfalutin way of expressing revulsion that anyone should be so profane as to attempt to measure the returns on something as ineffable as education.
The Coase Theorem essentially states that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.
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But Huntsman has identified another important externality.
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And while Eli may be correct that people who produce a lot of external value get rewarded in the long run, it would help if the economics field did a better job of rewarding positive externality generating behavior and of explicitly arguing for optimal social norms.
The negative externality at play here is that, by virtue of hosting their currently scheduled Thursday night game versus the White Sox, the Orioles will draw fans, attention, and space away from uses that would otherwise be focused on the Ravens game if that were the only game in town that Thursday night.
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