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Market Internalization Of Externalities: What Is Failing?

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  • Berta, Nathalie
  • Bertrand, Elodie

Abstract

The usual internalization of externality ‘by the market’ can be thought of through two different exchange modes: competitive markets, with Kenneth J. Arrow (1969); or bargaining, with Ronald H. Coase (1960). Although, in both cases, ‘externality’ refers to a non-exchanged effect that produces suboptimalities, these authors are working with two different, implicit conceptions of externality, rooted in different analytical worlds and calling for different institutions—parametric prices for the former but not for the latter. Moreover, while both start out with different theoretical frameworks, the authors share a concern for realism and unite when they introduce transaction costs, both advocating a policy design that calls for taking into account the costs of the different solutions. Nevertheless, this introduction of transaction costs does not itself escape consistency problems, since they do both maintain a reference to their respective ideal worlds.

Suggested Citation

  • Berta, Nathalie & Bertrand, Elodie, 2014. "Market Internalization Of Externalities: What Is Failing?," Journal of the History of Economic Thought, Cambridge University Press, vol. 36(3), pages 331-357, September.
    • Handle: RePEc:cup:jhisec:v:36:y:2014:i:03:p:331-357_00
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    Cited by:

    1. repec:clg:wpaper:2015-21 is not listed on IDEAS
    2. Nathalie Berta, 2016. "On the definition of externality as a missing market," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01277990, HAL.
    3. Elodie Bertrand, 2019. "Much ado about nothing? The controversy over the validity of the Coase theorem," Post-Print hal-03479468, HAL.
    4. Berta, Nathalie, 2015. "Prix versus quantités : les contorsions du marché du carbone européen," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 18.
    5. Elodie Bertrand, 2015. "From the Firm to Economic Policy: The Problem of Coase's Cost," Post-Print hal-03512866, HAL.
    6. Nathalie Berta, 2017. "On the definition of externality as a missing market," Post-Print hal-02095696, HAL.
    7. Nathalie Berta, 2016. "On the definition of externality as a missing market," Post-Print halshs-01277990, HAL.
    8. Nathalie Berta, 2016. "On the definition of externality as a missing market," Documents de travail du Centre d'Economie de la Sorbonne 16007, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    9. Shteryo Nozharov, 2023. "Social costs of circular economy in European Union," Post-Print hal-04307150, HAL.
    10. Shteryo Nozharov, 2023. "Social costs of curcular economy in European Union," Papers 2401.13675, arXiv.org.
    11. Berta, Nathalie, 2020. "Efficiency without Optimality: A Pragmatic Compromise for Environmental Policies in the Late 1960s," OSF Preprints wp2xf, Center for Open Science.

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