Positive externalities and the environment

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When you see “environment” and “externality” in the same sentence, it is a safe bet that the issue being discussed is negative externalities associated with production or consumption. These are certainly critical, but they are not the only area in which environmental thought and economic theory on externalities intersect. The positive externalities associated with new technologies also bear consideration. When a firm or individual invents something that provides major overall benefits, many of those will accrue to other people. This is good from the perspective of those able to benefit from the new technologies, but it is theoretically bad for innovation overall. If I suspect that most of the gains for my new engine, battery, or vaccine technology will accrue to other people, I will not devote as much of my time and resources to developing such innovations as I would if I believed I would personally get all the benefits.

As with intellectual property rights in general, the issue of balance here is a critical and difficult one. We want to encourage people to design and build better solar cells, wind turbines, and power plants. They could arguably be best encouraged to do so by giving them extensive property rights over what they come up with: lengthy patents and the right to collect royalties from all users. That said, such a restrictive system could sharply limit distribution. Once we have a good technology, we want to see it widely deployed – including in places where people have urgent sustenance needs and cannot be fairly called upon to pay heavy royalty fees.

One established way to square this circle is with prizes. The X-Prize assisted the development of (highly greenhouse gas intensive) private space technology. Prizes may also be used successfully to encourage the development of vaccines and treatments for poor world diseases like malaria. Richard Branson has created a prize for straight-out-of-the-air carbon capture. A few big prizes for things like lowering the cost and efficiency of renewable power sources might help to overcome institutional hesitation within innovative firms, as well as get some clever people tinkering in their garages.

The existence of positive externalities associated with new technology also provides strong justification for other governmental interventions: including direct government research and governmental support for private and academic efforts. Internalizing the full costs of pollution is exceedingly important if we aim to achieve environmental protection within a free market system; internalizing the benefits of innovation may also help to bring that about.

For a much more detailed discussion, see: Jaffee, Adam et al. “A tale of two market failures: Technology and environmental policy.” Ecological Economics. Volume 54, Issues 2-3, 1 August 2005, Pages 164-174.

Author: Milan

In the spring of 2005, I graduated from the University of British Columbia with a degree in International Relations and a general focus in the area of environmental politics. In the fall of 2005, I began reading for an M.Phil in IR at Wadham College, Oxford. Outside school, I am very interested in photography, writing, and the outdoors. I am writing this blog to keep in touch with friends and family around the world, provide a more personal view of graduate student life in Oxford, and pass on some lessons I've learned here.

2 thoughts on “Positive externalities and the environment”

  1. Blue in green

    Dec 10th 2007
    From Economist.com
    It’s time to put greens in their place

    EVERY day the world we live in seems to get a little greener. There are green politics, green economics, green living and, well, Green.view. The colour is used as a synonym for environmentalism.

    This is bad. Whilst chlorophyll is, without doubt, hugely significant to life on this planet, the anthropocentric, terrestrialist view of the world that dubs those that care as “green” needs to be challenged.

    Simply because those who would save the planet have feet and not flippers, and breathe air rather than water, they’ve called themselves greens rather than blues. Yet Earth is mostly water. As any schoolchild can tell you, the planet is blue. When did you last hear of the Earth from space described as the “Green marble”? Never, that’s when.

  2. “We’ve spent years listening to greens complaining about the loss of the rainforests, acid rain, and extinctions of mammals, birds and plants. All serious issues. But while we’ve been worrying about them, we have eaten 90% of the world’s large fish, destroyed much of the world’s coral and nurtured algal blooms the size of entire American states.”

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