Characteristics Of Internalizing Externalities

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Internalizing Externalities: A Complex Approach This introductory section provides a brief overview of “internalizing externalities” worldview and its key characteristics. Every subject of economic activity affects environment surrounding it, which may include water, plants, soil, animals, people, other subjects and even weather and climate. The effects caused by economic activity are called “externalities” and they can be positive or negative. Regarding the environment, externalities are mostly negative: air and water pollution, extinction of species, weather and climate change. In response to the rapidly deteriorating environmental situation (as a result of industry development and extended manufacturing), some governments introduced special …show more content…

Decades ago, before standardization and division of labor were invented the majority of goods was produced in one place by one enterprise and in the network of a complete production cycle. Today, different parts of a complex composite product are often produced by different companies, sometimes located in different regions and countries, and then transported to the place, where the final product is assembled. In other words, it is not one economic subject that causes impacts on the environment, but a whole multitude of different organizations, including mining, processing, logistic companies etc. Thus, “internalizing” taxes shall be allocated between all the economic actors that participate in the production of one good from the start to the placing the final product on the …show more content…

This means that even if 90% percent of the economic subjects pay the “internalizing” taxes and follow the rules, the other 10% (which may do a significant amount of damage to the environment) don’t and it is not possible to control and compensate total effect the production has. In addition, it is important to notice that often governments don’t use properly all the money economic actors pay to compensate the impact of nature. Instead, that money is allocated to other expenses and damage to the environment is not covered. Quite frequently, the economic actors don’t follow the set limitations completely, but even if they do, they still cause damage to the environment and people that can’t be repaired. The other issue with “internalizing externalities” worldview is that not all kinds of damage can be covered by the money economic subjects pay. It is not possible to restore the natural state of the territories where coal is mined or oil is produced, the species that became instinct because of the influence of economic activity can’t be revived and the

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