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Making Pollution into a Market Failure Rather Than a Cost-Shifting Success: The Suppression of Revolutionary Change in Economics

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  • Spash, Clive L.

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Abstract

This paper explores core failures of environmental economics as a scientific attempt to understand the ecological crises. The case of environmental pollution is used to show how neoclassical externality theory evolved to establish commitment to, and dogmatic support for, an elitist ethics and liberal market ideology. The public policy response to pollution then recommended is to internalise externalities by correcting market prices based on monetary valuation of the social costs (i.e., damages). Pollution as a market failure is deemed a correctible error of the price system. This is contrast with an alternative theory of pollution based on a classic institutional economic theory of cost-shifting that instead requires a public policy response involving regulation and planning. Reflection on the history of thought related to these two theories of pollution reveals how environmental economics became a marginalised field supporting the neoclassical economic orthodoxy with full commitment to its core paradigms. Why the critical and realist institutional approach had to be suppressed is explained as denying the potential for a revolutionary paradigm shift in economic price theory.

Suggested Citation

  • Spash, Clive L., 2019. "Making Pollution into a Market Failure Rather Than a Cost-Shifting Success: The Suppression of Revolutionary Change in Economics," SRE-Discussion Papers 2019/06, WU Vienna University of Economics and Business.
    • Handle: RePEc:wiw:wus009:7276
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    References listed on IDEAS

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    1. Herman E. Daly, 1972. "In Defense of a Steady-State Economy," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 54(5), pages 945-954.
    2. repec:eee:ecolec:v:146:y:2018:i:c:p:157-163 is not listed on IDEAS
    3. Kapp, K William, 1969. "On the Nature and Significance of Social Costs," Kyklos, Wiley Blackwell, vol. 22(2), pages 334-347.
    4. Baumol, William J, 1972. "On Taxation and the Control of Externalities," American Economic Review, American Economic Association, vol. 62(3), pages 307-322, June.
    5. Emery N. Castle, 1965. "The Market Mechanism, Externalities, and Land Economics," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 47(3), pages 542-556.
    6. Kapp, K William, 1970. "Environmental Disruption and Social Costs: A Challenge to Economics," Kyklos, Wiley Blackwell, vol. 23(4), pages 833-848.
    7. Mishan, E J, 1971. "The Postwar Literature on Externalities: An Interpretative Essay," Journal of Economic Literature, American Economic Association, vol. 9(1), pages 1-28, March.
    8. Tibor Scitovsky, 1954. "Two Concepts of External Economies," Journal of Political Economy, University of Chicago Press, vol. 62, pages 143-143.
    9. Spash, Clive L., 2013. "The shallow or the deep ecological economics movement?," Ecological Economics, Elsevier, vol. 93(C), pages 351-362.
    10. Francis M. Bator, 1958. "The Anatomy of Market Failure," The Quarterly Journal of Economics, Oxford University Press, vol. 72(3), pages 351-379.
    11. Clive L. Spash, 1999. "The Development of Environmental Thinking in Economics," Environmental Values, White Horse Press, vol. 8(4), pages 413-435, November.
    12. repec:mes:jeciss:v:7:y:1973:i:2:p:337-353 is not listed on IDEAS
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    More about this item

    Keywords

    environmental economics; externalities; cost-shifting; price theory; pollution; Arthur C Pigou; K William Kapp; paradigm shift; neoclassical economics; orthodoxy; institutional economics;

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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