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Market Solutions to Externality Problems: Theory and Practice

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  • Alan Randall

Abstract

The concept of market solution to externality problems has received the favorable attention of many economic theorists. Yet, policy practitioners and the general public seem less enthusiastic. Theoretical studies and available empirical work have effectively demolished Coase's doctrine of the allocative neutrality of liability rules. In reality, a full liability law will result in a greater degree of abatement of external diseconomies than will zero or intermediate liability laws. It is suggested that market solutions can be seriously considered in a world with pervasive externalities only if something approaching a full liability rule is established. Even then, excessive transactions costs may limit the success of market solutions.

Suggested Citation

  • Alan Randall, 1972. "Market Solutions to Externality Problems: Theory and Practice," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 54(2), pages 175-183.
    • Handle: RePEc:oup:ajagec:v:54:y:1972:i:2:p:175-183.
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    1. Rahman, Akim M. & Edwards, Clive A., 2004. "Electricity: taxes on emission liabilities. An examination of the economic effectiveness of Polluter Pays Principles," Energy Policy, Elsevier, vol. 32(2), pages 221-235, January.
    2. Ian D. Hodge, 1982. "Rights To Cleared Land And The Control Of Dryland‐Seepage Salinity," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 26(3), pages 185-201, December.
    3. Hertzler, Greg, 1994. "Coordinating Production And Disposal Of Commodity Stockpiles With Application To Australia'S Wool Industry," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 38(1), pages 1-28, April.
    4. Norgaard, Richard B. & Jin, Ling, 2008. "Trade and the governance of ecosystem services," Ecological Economics, Elsevier, vol. 66(4), pages 638-652, July.
    5. Helmut Dietl & Christian Weingärtner, 2012. "Betting scandals and attenuated property rights - How betting related match fixing can be prevented in future," Working Papers 0154, University of Zurich, Institute for Strategy and Business Economics (ISU).
    6. Johnston, Jim H., 1975. "Public Policy On Cattle Tick Control In New South Wales," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 43(01), pages 1-37, March.
    7. Zhifeng Zhang & Hongyan Duan & Shuangshuang Shan & Qingzhi Liu & Wenhui Geng, 2022. "The Impact of Green Credit on the Green Innovation Level of Heavy-Polluting Enterprises—Evidence from China," IJERPH, MDPI, vol. 19(2), pages 1-19, January.
    8. Daniel W. Bromley, 1982. "Land and Water Problems: An Institutional Perspective," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 64(5), pages 834-844.
    9. Banzhaf, H. Spencer, 2016. "Constructing markets: environmental economics and the contingent valuation controversy," MPRA Paper 78814, University Library of Munich, Germany.
    10. Ke Chen & Yujian Ping & Xinning Pan & Mingzhu Ye & Yang Wang, 2024. "Does Ecotourism in Nature Reserves Have an Impact on Farmers’ Income? Counterfactual Estimates Based on Propensity Score Matching," Agriculture, MDPI, vol. 14(4), pages 1-18, April.
    11. Dengu, T. & Lyne, Michael C., 2007. "Secure land rental contracts and agricultural investment in two communal areas of KwaZulu-Natal," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 46(3), pages 1-12, September.
    12. Johnson, Glenn L., 1992. "PART FOUR. Philosophic Foundations of Agricultural Economic Thought from World War II to the mid-1970s," AAEA Monographs, Agricultural and Applied Economics Association, number 337234, january.
    13. Jogn C. Bergstrom & Terence J. Centner, 1989. "Agricultural Nuisances and Right to Farm Laws: Implications Of Changing Liability Rules," The Review of Regional Studies, Southern Regional Science Association, vol. 19(1), pages 23-30, Winter.
    14. Kirby, Michael G. & Blyth, Michael J., 1987. "Economic Aspects Of Land Degradation In Australia," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 31(2), pages 1-21, August.
    15. Isabelle Piot-Lepetit, 2014. "Technological externalities and environmental policy," Annals of Operations Research, Springer, vol. 214(1), pages 31-48, March.
    16. Hacopian Dolatabadi, Sarineh & Latify, Mohammad Amin & Karshenas, Hamidreza & Sharifi, Alimorad, 2022. "On pricing issues in electricity markets in the presence of externalities," Energy, Elsevier, vol. 246(C).
    17. Mallawaarachchi, Thilak & Morrison, Mark & Blamey, Russell K., 2001. "Determining the community value of peri-urban land: The significance of environmental amenity and production alternatives," 2001 Conference (45th), January 23-25, 2001, Adelaide, Australia 125763, Australian Agricultural and Resource Economics Society.
    18. Musser, Wesley N., 1979. "Discussion: Non-Point Source Pollution Abatement—Potential Impact and Research Needs," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 11(2), pages 11-15, December.
    19. Headley, J. Charles, 1972. "Agricultural Productivity, Technology and Environmental Quality," 1972 Annual Meeting, August 20-23, Gainesville, Florida 337291, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    20. Gramzow, Andreas, 2009. "Rural development as provision of local public goods: Theory and evidence from Poland," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 51, number 92313.
    21. Alain Marciano, 2010. "Calabresi, "law and economics" and the Coase theorem," ICER Working Papers 26-2010, ICER - International Centre for Economic Research.

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