Social Externalities and Economic Analysis

27 Pages Posted: 1 Oct 2021

See all articles by Marc Fleurbaey

Marc Fleurbaey

Paris School of Economics

Ravi Kanbur

Cornell University; Cornell SC Johnson College of Business; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Brody Viney

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: August 06, 2020

Abstract

This paper considers and assesses the concept of social externalities through human
interdependence, in relation to the economic analysis of externalities in the tradition of Pigou and
Arrow, including the analysis of the commons. It argues that there are limits to economic analysis.
Our proposal is to enlarge the perspective and start thinking about a broader framework in which
any pattern of influence of an agent or a group of agents over a third party, which is not mediated
by any economic, social, or psychological mechanism guaranteeing the alignment of the marginal
net private benefit with marginal net social benefit, can be attached the “externality” label and be
scrutinized for the likely negative consequences that result from the divergence. These
consequences may be significant given the many interactions between the social and economic
realms, and the scope for spillovers and feedback loops to emerge. The paper also establishes a
tentative and probably incomplete list of possible internalizing mechanisms for externalities under
this broader framework, which includes: pricing and monetary incentives; altruism and solidarity;
moral norms; reciprocity and mutual monitoring; centralized cooperative decision-making; and
merger. There are clear reasons why the pricing mechanism is not appropriate in some cases. A
more difficult question to answer is what factors determine which of the mechanisms is the
appropriate one to rely on in a given sphere of relations and activities. The object of the paper is to
encourage research and contributions from all the relevant disciplines of social sciences on the
pervasive human interdependence that the notion of social externalities tries to capture.

Keywords: Externalities, Commons, Human Interdependence, Social Externalities, Internalizing Mechanisms, Ethical Principles

JEL Classification: A12, A13, B31, D02, D62, D63, H23

Suggested Citation

Fleurbaey, Marc and Kanbur, Ravi and Viney, Brody, Social Externalities and Economic Analysis (August 06, 2020). The SC Johnson College of Business Applied Economics and Policy Working Paper Series No. AEP WP No. 2021-07, Available at SSRN: https://ssrn.com/abstract=3933271 or http://dx.doi.org/10.2139/ssrn.3933271

Marc Fleurbaey

Paris School of Economics ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Ravi Kanbur (Contact Author)

Cornell University ( email )

301-J Warren Hall
Ithaca, NY 14853
United States
607-255-7966 (Phone)
607-255-9984 (Fax)

HOME PAGE: http://www.kanbur.dyson.cornell.edu

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Brody Viney

affiliation not provided to SSRN

No Address Available

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