Resource Misallocations, Externalities, and Environmentalism: A U.S.-Canadian Analysis
3 Pages Posted: 23 Jul 2011
Date Written: July 21, 2011
It is a truism among economists that only if the full costs and benefits of economic activity are taken into account by the entrepreneur, will resources be allocated in a Pareto Optimal manner. Under present economic conditions, however, some manufacturers are able to impose costs, particularly pollution or disposal costs, onto third parties. As a result, the actual social costs of such activities are greater than the recorded private costs. At present, the benefits of these goods need be equal to or greater than only the lower private costs, not the higher social costs, if the enterprise is to be able to at least break even and thus continue in operation. This being the case, it follows that the value of at least some of these presently produced goods and services will fall below the total or social costs, and should not be produced at all, if wealth is to be maximized.
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