Despite its increasing role in the economic theory, the externality concept seems to evade any attempt for a rigorous and consensual definition, and this from Meade's original article to Arrow's work. An externality is soon seen as an unpriced "direct interaction" but some of its a priori intuitive features - its involuntary and uncontrollable dimension - have not yet reached a consensus. These ambiguities reflect a tension between a formal definition which is subject to broad interpretation and a phenomenological definition seeking to circumscribe the externality to certain specific types of phenomena. Furthermore, whereas the externality's Pareto inefficiency is almost constitutive of its definition, there is no consensus on its status as a failure - whether absolute or relative - when it comes to dealing with the causes of externalities and hence with possible transaction costs.
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Find related papers by JEL classification: H0 - Public Economics - - General D62 - Microeconomics - - Welfare Economics - - - Externalities B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
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