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Notes on Market Failure and the Paretian (Kaldor-Hicks) Relevance and Irrelevance of Unfavourable Externalities

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  • Tisdell, Clement A.

Abstract

The following are notes that have been distributed by me over the last few years to students in Environmental Economics at The University of Queensland. They give particular attention to whether externalities are Pareto or Kaldor-Hicks relevant from a policy point of view. Externalities are Kaldor-Hicks or Pareto irrelevant if no change is possible for which gainers could compensate losers. Both absolute and marginal externalities may be Kaldor-Hicks relevant. Infra-marginal negative externalities are often, but not always, Kaldor-Hicks irrelevant. There are at least two cases where such externalities can be relevant. First, the absolute impact of the negative externality may be so great that the source of the externality should be eliminated. Secondly, if the externality arises from production, its nature may depend on the type of production technique adopted. Although for the technique adopted, an infra-marginal negative externality occurs. That is Paretian irrelevant given that choice of this technique is the only available possibility, alternative techniques may actually be available in practice. Some of these may generate even smaller total external effects and be socially preferable. Both cases are outlined and illustrated in these notes. The analysis reveals the dangers of relying on marginalism for deciding on environmental policy. Total (external) effects are often of great social and economic importance and appropriate social choices cannot be made on the basis of marginalism alone.

Suggested Citation

  • Tisdell, Clement A., 2003. "Notes on Market Failure and the Paretian (Kaldor-Hicks) Relevance and Irrelevance of Unfavourable Externalities," Economics, Ecology and Environment Working Papers 48970, University of Queensland, School of Economics.
  • Handle: RePEc:ags:uqseee:48970
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    File URL: http://purl.umn.edu/48970
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    References listed on IDEAS

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    1. Clevo Wilson, 2003. "Empirical Evidence Showing The Relationships Between Three Approaches for Pollution Control," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 24(1), pages 97-101, January.
    2. Tisdell, Clement A., 1999. "Technology Transfer from Publicly Funded Research for Improved Water Management: Analysis and Australian Examples," Economics, Ecology and Environment Working Papers 47993, University of Queensland, School of Economics.
    3. Davis, Rex & Tisdell, Clement A., 2001. "Alternative Specifications and Extensions of the Economic Threshold Concept and the Control of Livestock Pests," Economics, Ecology and Environment Working Papers 48381, University of Queensland, School of Economics.
    4. Bandara, Ranjith & Tisdell, Clement A., 2003. "Willingness of Sri Lankan Farmers to pay for a Scheme to Conserve Elephants: An Empirical Analysis," Economics, Ecology and Environment Working Papers 48954, University of Queensland, School of Economics.
    5. Tisdell, Clement A. & Bandara, Ranjith, 2003. "Visitors' reaction to Pinnawala Elephant Orphanage in Sri Lanka: A Survey," Economics, Ecology and Environment Working Papers 48963, University of Queensland, School of Economics.
    6. Tisdell, Clement A., 1997. "Tourism Economics and its Application to Regional Development," Economics, Ecology and Environment Working Papers 53637, University of Queensland, School of Economics.
    7. Tisdell, Clement A., 1997. "Compensation for the taking of Resource Interests: Practices in Relation to the Wet Tropics and Fraser Island, General Principles and their Relevance to the Extension of Dugong Protected Areas," Economics, Ecology and Environment Working Papers 53639, University of Queensland, School of Economics.
    8. Bandara, Ranjith & Tisdell, Clement A., 2002. "Asian Elephants as Agricultural Pests: Damages, Economics of Control and Compensation in Sri Lanka," Economics, Ecology and Environment Working Papers 48735, University of Queensland, School of Economics.
    9. Tisdell, Clement A., 2002. "Bioeconomic Analysis of Aquaculture's Impact on Wild Stocks and Biodiversity," Economics, Ecology and Environment Working Papers 48739, University of Queensland, School of Economics.
    10. Tisdell, Clement A., 1998. "Protecting the Environment in Transitional Situations," Economics, Ecology and Environment Working Papers 47953, University of Queensland, School of Economics.
    11. Wilson, Clevo Tis & Tisdell, Clem, 2004. "Attitudes to Entry Fees to National Parks: Results and Policy Implications from a Queensland Case Study," Economic Analysis and Policy, Elsevier, vol. 34(1), pages 79-102, March.
    12. Tisdell, Clement A., 2003. "Property rights of landholders in non-captive wildlife and prospects for conservation," Economics, Ecology and Environment Working Papers 48964, University of Queensland, School of Economics.
    13. Wilson, Clevo & Tisdell, Clem, 2001. "Why farmers continue to use pesticides despite environmental, health and sustainability costs," Ecological Economics, Elsevier, vol. 39(3), pages 449-462, December.
    14. Tisdell, Clement A. & Wilson, Clevo, 2000. "Developing Ecotourism for the Survival of Sea Turtles," Economics, Ecology and Environment Working Papers 48008, University of Queensland, School of Economics.
    15. Tisdell, Clement A., 1997. "Economic Policy Instruments and Environmental Sustainability: A Second Look at Marketable or Tradeable Pollution or Environmental-Use Permits," Economics, Ecology and Environment Working Papers 47941, University of Queensland, School of Economics.
    16. Chai, Joseph C.H., 2000. "Environmental Impact of China's Accession to WTO in the Manufacturing Sector," Economics, Ecology and Environment Working Papers 48010, University of Queensland, School of Economics.
    17. Zhuge, Ren & Tisdell, Clement A., 1996. "Sustainability Issues and Socio-Economic Change in the Jingpo Communities of China: Governance, Culture and Land Rights," Economics, Ecology and Environment Working Papers 53596, University of Queensland, School of Economics.
    18. Tisdell, Clement A., 1996. "Integrated Regional Environmental Studies: The Role of Environmental Economics," Economics, Ecology and Environment Working Papers 53598, University of Queensland, School of Economics.
    19. Tisdell, Clement A. & Wilson, Clevo, 2003. "Open-Cycle Hatcheries, Tourism and Conservation of Sea Turtles: Economic and Ecological Analysis," Economics, Ecology and Environment Working Papers 48959, University of Queensland, School of Economics.
    20. Tisdell, Clement A. & Wilson, Clevo, 2003. "Visitor Profiles and Environmental Attributes, especially of Birds, Attracting Visitors to Lamington National Park: Tourist Attitudes and Economic Issues," Economics, Ecology and Environment Working Papers 48957, University of Queensland, School of Economics.
    21. Bandara, Ranjith & Tisdell, Clem, 2004. "The net benefit of saving the Asian elephant: a policy and contingent valuation study," Ecological Economics, Elsevier, vol. 48(1), pages 93-107, January.
    22. Tisdell, Clement A., 1997. "Ecotourism: Aspects of Its Sustainability and Compatibility," Economics, Ecology and Environment Working Papers 53641, University of Queensland, School of Economics.
    23. Tisdell, Clement A., 1997. "Impact on the Poor of Changing Rural Environments and Technologies: Evidence from India and Bangladesh," Economics, Ecology and Environment Working Papers 53636, University of Queensland, School of Economics.
    24. Tisdell, Clement A. & Wilson, Clevo, 2000. "A Study of the Impact of Ecotourism on Environmental Education and Conservation: The case of Turtle Watching at an Australian Site," Economics, Ecology and Environment Working Papers 48365, University of Queensland, School of Economics.
    25. Bandara, Ranjith & Tisdell, Clement A., 2002. "Willingness to Pay for Conservation of the Asian Elephant in Sri Lanka: A Contingent Valuation Study," Economics, Ecology and Environment Working Papers 48738, University of Queensland, School of Economics.
    26. Wilson, Clevo & Tisdell, Clement A., 2003. "Conflicts over Natural Resources and the Environment: Economics and Security," Economics, Ecology and Environment Working Papers 48967, University of Queensland, School of Economics.
    27. Tisdell, Clement A., 1997. "China's Environmental Problems with Particular Attention to its Energy Supply and Air Quality," Economics, Ecology and Environment Working Papers 53634, University of Queensland, School of Economics.
    28. Tisdell, Clement A., 1998. "Asia's Livestock Industries: Changes and Environmental Consequences," Economics, Ecology and Environment Working Papers 54347, University of Queensland, School of Economics.
    29. Bandara, Ranjith & Tisdell, Clement A., 2003. "Willingness to pay for different degrees of Abundance of Elephants," Economics, Ecology and Environment Working Papers 48966, University of Queensland, School of Economics.
    30. repec:taf:rjapxx:v:3:y:1998:i:3:p:388-409 is not listed on IDEAS
    31. Tisdell, Clement A., 1996. "Sustainable Development and Environmental Conservation: Major Regional Issues with Asian Illustrations," Economics, Ecology and Environment Working Papers 53597, University of Queensland, School of Economics.
    32. Wilson, Clevo & Tisdell, Clement A., 2002. "Conservation and Economic Benefits of Wildlife-based Marine Tourism: Sea Turtles and Whales as Case Studies," Economics, Ecology and Environment Working Papers 48734, University of Queensland, School of Economics.
    33. Tisdell, Clement A. & Wilson, Clevo, 2003. "The Public's Knowledge of and Support for Conservation of Australia's Tree-Kangaroos," Economics, Ecology and Environment Working Papers 48955, University of Queensland, School of Economics.
    34. Xue, Dayuan & Tisdell, Clement A., 2000. "Valuing Ecological Functions of Biodiversity in Changbaishan Mountain Reserve in Northeast China," Economics, Ecology and Environment Working Papers 47997, University of Queensland, School of Economics.
    35. Tisdell, Clement A. & Wilson, Clevo, 2000. "Wildlife-based Tourism and Increased Tourist Support for Nature Conservation Financially and Otherwise: Evidence from Sea Turtle Ecotourism at Mon Repos," Economics, Ecology and Environment Working Papers 48364, University of Queensland, School of Economics.
    36. Tisdell, Clement A., 1996. "Protection of the Environment in Transitional Economies: Strategies and Practices," Economics, Ecology and Environment Working Papers 53594, University of Queensland, School of Economics.
    37. Clem Tisdell, 1998. "Brunei's quest for sustainable development: Diversification and other strategies," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 3(3), pages 388-409.
    38. Tisdell, Clement A. & Wilson, Clevo, 2003. "Economics of Wildlife Tourism," Economics, Ecology and Environment Working Papers 48969, University of Queensland, School of Economics.
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