In modern economics, the concept of externality appeared late, but it became more and more important. So far, there are three authoritative definitions of externalities, which link externalities with other basic concepts of economics from several aspects.
The first definition is that when one individual's behavior affects another individual's environment without affecting the price, we call it externality (1).
The second definition is that the external economy (or diseconomy) is an event, which brings perceived benefits (or perceived damages) to one person or some people, and this person (s) does not fully agree with the decision that directly or indirectly leads to the event (2).
The third definition is that when the personal cost caused by some people's behavior is not equal to the social cost and the personal benefit is not equal to the social benefit, externalities exist (3).
First of all, externalities involve human behavior. Of course, here, these actions do not include human actions against nature, but counter actions between people, that is, counter actions. In communication, there are conflicts of interest between people. One person or some people may bear or obtain the costs or benefits caused by another person or other people's actions. Therefore, externalities reflect the interaction between people. The study of this relationship is the focus of classical political economy tradition and modern institutional economics. In order to pursue their own best interests, people can choose different ways of action (or transactions), which is called strategy. Broadly speaking, inaction is also a way of action or strategy. Strategies in interpersonal communication can be called countermeasures or games. In game theory, the characteristics of human interaction (or trading activities) are clearly revealed: the benefits of a person's behavior depend not only on the efforts of the actor himself, but also on the behavior of the other party who trades with him. Therefore, the study of externalities can be based on game theory.
Second, the second definition takes consent as the criterion of externality. This standard is the standard of judging economic efficiency by economic theory based on contract theory. According to this theory, the transaction agreed by both parties is the most efficient transaction. In game theory, whether the two sides reach an agreement is the main difference between Nash equilibrium and dominant strategy equilibrium (4). In Coase's theory, consent is not a psychological problem, but a cost problem. Because to reach an agreement, we must first communicate information, negotiate or bargain, all of which cost money. Therefore, the difference between Nash equilibrium and dominant strategy equilibrium can be described by the transaction cost.
Third, externalities must involve the concepts of cost and benefit. These two concepts are the basis of economics and do not seem to need to be discussed for a long time. However, after encountering externalities, the boundary between costs and benefits is blurred. In neoclassical economics, people assume that a person will fully bear the costs or benefits caused by his actions. If there is externality, the cost or benefit caused by a person's behavior is not entirely borne by himself; On the other hand, he may also bear the costs or benefits brought by others' actions when he does not act. In interpersonal communication, one person's cost may be another person's income, and one person's income may be another person's cost. Between alternative actions or strategies, the benefit of one choice is the opportunity cost of another choice (5), and its cost is the opportunity benefit of another choice. To give an extreme example, the income of action is the opportunity cost of inaction, and the cost of action is the opportunity income of inaction. Finally, Coase pointed out in his famous paper Social Cost that externalities are mutual (6). From this point of view, what is a person's cost or income is very problematic. If a factory "has the right" to pollute, then the cost caused by pollution is caused by the existence of the polluted person, so pollution is not its "personal cost"; If you have no right to pollute, you must pay for it, so pollution is its "personal cost". But when "right" or "wrong" has not been determined, there is no way to talk about costs or benefits. The definition of cost and income becomes the result of property right system.
Obviously, the concept of externality is a general concept in economics. Its universality enables it to play an important role in economic analysis and even replace some less common concepts. However, each of the above definitions has some limitations. The first definition is too narrow, because when the price system does not work, human beings can eliminate externalities through other means (such as tax system); Some externalities can also bring positive externalities to consumers through price transmission, such as the improvement of production methods and the reduction of costs. The second definition emphasizes the standard of consent. Although it has great applicability, it cannot explain why some institutional arrangements (such as laws) to solve externalities have mandatory characteristics. The third definition is a bit circuitous. The concept of social cost or social benefit actually refers to the sum of the cost or benefit of the actor and the cost or benefit of others affected by it. The word "society" has some impersonal characteristics, and it is easy to blur the interactive relationship between people with the concepts of social cost and social benefit. It may be better to describe the concept of externalities in the following language:
Externality exists when one (or some) people do not bear all the costs or benefits caused by his actions, and conversely, externalities exist when someone bears the costs or benefits caused by other people's actions.
Second, the nature of externalities
Since Marshall, more and more economists have studied externalities from different angles. Among them, Pigou, Olson, Coase, North and some game theory experts are all famous. Pigou started with "public goods", Olson started with "collective action", Coase started with "external aggression", North started with "hitchhiking" and game theory experts started with "prisoner's dilemma".
The discussion on "public goods" reveals that the externality problem has some "inseparability", that is, no individual can monopolize the consumption of public goods (7); Olson pointed out in The Logic of Collective Action that it is difficult for individuals to reach an agreement to obtain some kind of "collective product" because of the existence of negotiation cost, so the externality problem is reflected in the opposition between individual action and collective action, and its degree is related to the number of people who decide the negotiation cost (8); Coase emphasized the reciprocity of externalities, reminding us that in reality, externalities are not always one-way, and individuals can achieve a certain degree of balance through certain actions (9); North's research tells us that "hitchhiking" is an obstacle to institutional change, which shows that successful institutional change has successfully overcome externalities (10). Finally, the "prisoner's dilemma model" shows that the existence of externalities reflects a deep-rooted contradiction in human society, that is, the inconsistency between individual rationality and collective rationality, and individual optimization and social optimization (11); Moreover, due to the universality of this game theory model, the above properties of externalities can be fully described.
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first
noncooperation
Not cooperating 0-5
0 5
second
Cooperation 5 4
-5 4
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I won't explain this model in detail. As can be seen from the above figure, when the two sides do not cooperate, their respective scores are 0, and the score of the whole society is also 0; When the two parties cooperate, their respective scores are 4, and the whole society scores 8. The reason why the two sides can't cooperate is that once one side is willing to cooperate and the other side doesn't cooperate, the former will lose 5 points and the latter will get 5 points; So the best choice for both sides is not to cooperate. What needs to be noted here is that there are no external problems without cooperation between the two sides. Because at this time, no one took advantage of anyone and no one suffered. Only when one party cooperates and the other party does not cooperate will there be externalities. In this case, we can explain that Party A paid for the public goods, but Party B didn't. A actively limits production, which leads to price increase, while B does not limit production, but enjoys it; A has made efforts for institutional change, thus increasing social wealth, while B is just "hitchhiking"; Wait a minute. Here, because the new income of both parties is the result of cooperation, if one party does not cooperate, it will inevitably lead to the failure to realize this new income, and the party who takes the cooperative behavior will spend the cost in vain or lose more than the gain, so these costs or losses can be regarded as non-cooperative partners. Non-cooperation is also an action (strategy). However, in the long run, no one will tolerate others always taking advantage of him. If there is no better way, the party who adopts cooperative strategy will eventually return to non-cooperative strategy. At this time, there is a balance of non-cooperation. From this, we can see the essence of externalities, that is, the real harm of externalities to human society is not only the conflict between people in bearing costs and benefits, but also the cooperation or institutional arrangement between people that can bring more social wealth or avoid social disasters can not be realized because of this insurmountable conflict.
In the above model, the difference between the social benefits of cooperation between the two parties and the social benefits of non-cooperation between the two parties is 8. This is also the potential income that society loses because of externalities. Therefore, the essence of externality can be explained by the word externality itself, that is, the result of externality is the potential benefit that society may obtain by eliminating externality, which is external to all members of society.
At present, there are three main types of externalities faced by economics. The first category is the problem of economic system reform; The second category is the conflict between countries, nationalities and religions; The third category is the relationship between man and nature.
The first externality is mainly about how to distribute the new benefits brought by the change among the members of society. There are two typical problems. The first is "hitchhiking", that is, those who strive for reform can't get all the corresponding benefits; The second is "victims", that is, some people bear the costs that others should bear in the reform. The former situation makes the reform lack motivation; The latter situation increases the resistance to reform. Although the reform of replacing the old institutional arrangement with the new institutional arrangement means the growth of the total social welfare, it may be difficult or impossible to realize this reform if the new benefits cannot be distributed reasonably. For example, in the process of transforming from traditional planned economy to planned market economy, it is necessary to realize the transformation from planned pricing to market pricing in many fields of products or services. This change will obviously bring new social benefits, but at least it will hurt the people who used to nominally enjoy the planned low price. If this problem is not solved, it will be difficult to implement this reform smoothly. This is the case, for example, with the ongoing housing reform in China. The advantage of this reform is to make the real estate price (sales and rental) realize market pricing, thus providing more accurate information for resource allocation; And replace the non-monetary income form with monetary form (housing distribution is the most important part), reduce the transaction cost of this latter income form in distribution (housing distribution is a time-consuming work for each unit), so that each individual can use his income more effectively. But the difficulty is that if the housing price is simply raised to the market equilibrium level, people who used to enjoy low rent will rise up against it because of the damage to their interests, and it will be difficult to carry out the reform. Therefore, the key problem of housing reform is how to distribute the new income that may be realized by housing reform to all parties reasonably, so that their income will increase compared with that before the reform. This example is of universal significance.
The rational distribution of the new income form is not only the way to realize the reform, but also constitutes the characteristics of the new institutional arrangement. Because any successful institutional arrangement itself means a reasonable interest distribution structure, otherwise this institutional arrangement will disintegrate sooner or later.
The second external problem is the direct conflict between people. Conflict itself is a direct external problem, that is, the cost is directly imposed on the other side, such as war, terrorism, hostage problem and so on. These issues have always been outside the vision of orthodox economics, but in fact, their relationship with human welfare may be more important than other issues. Imagine that if the Gulf War can be avoided, perhaps the global economy will bring more benefits to mankind than 199 1 annual growth 1%. The reason of conflict is interest dispute, and the occurrence of conflict, especially violent conflict, just proves that there is no corresponding peaceful solution or institutional arrangement to eliminate these reasons. However, the interests involved in these interest disputes are far less than the losses caused by conflicts, so the value of institutional arrangements to solve these interest disputes lies in avoiding these losses. To some extent, the traditional method is very effective. For example, communicate the information channels between the two sides of the conflict and promote direct dialogue between the two sides (such as the Middle East Peace Conference and the US-Soviet nuclear disarmament negotiations); The mediation of the neutral party (such as the role of the United States and the Soviet Union in the negotiations between the Arab and Israeli sides); International organizations transcend the arbitration and media role of the state (such as the role of the United Nations in Cambodia and western hostage issues); Wait a minute. These methods have indeed achieved considerable success, but they are really powerless in the face of some problems. The difficulty in solving this kind of externality problem lies in that (1) the interests that cause disputes between the two sides are at least seemingly inseparable, such as Arab and Israeli claims to Jerusalem sovereignty; (2) The problem itself is of a very special nature, or it may not be repeated many times, such as the Middle East crisis, or it may not be repeated many times, such as the global nuclear war, but it may even affect the survival of the whole mankind; (3) It is generally ruled out that the government will solve the problem, because this will mean the establishment of a global government, which is at least impossible and not the best policy for a long time. Overcoming these difficulties is the task of institutional innovation, and in the efforts of institutional innovation, economics may provide some help to people in reality while developing itself.
The third kind of problems are mainly manifested in the fact that in the face of the relationship between man and nature, the relationship between man and nature is destroyed because of the lack of cooperation between people, which will further affect the survival and development of mankind. Such problems include global environmental problems, such as greenhouse effect and ozone layer; Fishing on the high seas; Protecting wild animals; Wait a minute. This kind of problem is considered as a typical externality, that is, the external environment of human beings, but it is actually caused by the externality strictly defined in this paper, that is, the natural state in which people live is worse than that without externalities, that is, the potential benefits that human beings may obtain from nature are external to the whole human race. For example, because the property rights of fish in the high seas are not defined, people will overfish and some fish will be endangered. So far, human beings have made unremitting efforts to overcome this externality, and various institutional arrangements created by human beings have also played an important role. For example, bilateral or multilateral contracts reached through equal negotiations, such as Antarctic treaty, high seas fishing treaty, wildlife protection treaty, etc. Through the role of the market, such as the invention of refrigerators with less chlorine and high thermal efficiency, micro-actors can make profits while reducing the damage to the odor layer, or large enterprises will introduce products with less chlorine and carbon dioxide as a means to improve the company's image and further compete; Through morality or altruism, as Greenpeace did; Wait a minute. But these means are not enough to effectively solve the problem. This externality challenges human beings and economics: (1) How to divide human rights and obligations under the condition that the environment is an inseparable product; (2) How to determine who should pay for improving the environment, the destroyer of the environment or the user of a better environment? This was put forward by Professor Coase in his famous paper "Social Cost Problem", but it didn't really solve the problem. (3) How to solve this problem when it cannot be repeated, just like the previous external problem; Because the ozone layer problem is really what experts say, and when all countries in the world are struggling to cooperate on this issue, maybe the ozone layer will no longer exist.
Modern economics has existed for more than 200 years, and human civilization has existed for thousands of years. In the past, the institutional arrangements for overcoming external problems were formed in the process of repeated interaction between people; This is still the main way of institutional innovation today and in the future. Economics can keep respect for this process, accumulate the knowledge of institutional innovation that has happened and is happening, and reduce the number of repetitions in the actual process through theoretical simulation and thinking experiments, thus reducing the cost of institutional innovation; At the same time, it is not excluded that economists put forward competitive schemes for institutional innovation at the macro and complex levels. The concept of externality is put forward and popularized, which makes economic theory have a clearer understanding of the problems it should pay attention to and gives a simple and effective thinking path. The research on the process of institutional innovation will make economics itself more suitable for human beings to play an active role in solving external problems.