Externalities: Difference between revisions
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'''An externality is a cost or benefit caused by a producer that is not financially incurred or received by that producer. | [[File:Negative externality.jpg|alt=Negative externality|thumb|'''Figure 1'''. Some examples of negative externalities.]] | ||
'''An externality is a cost or benefit caused by a producer that is not financially incurred or received by that producer.''' In business, if a [[corporation]] is looking to maximise profit it will aim to privatise benefits and socialise the costs. | |||
It's easy to come to the opinion that there is an evil villain capitalist making lots of money and pumping externalities into the environment. Whilst this may be true in some cases perhaps the [[relativity of ethics]] can excuse some of the culprits. If you did not have something on the lowest [[Maslow's hierarchy|Maslow Hierarchy]] rung would you not jeopardise the anonymous other? | It's easy to come to the opinion that there is an evil villain capitalist making lots of money and pumping negative externalities into the environment. Whilst this may be true in some cases perhaps the [[relativity of ethics]] can excuse some of the culprits. If you did not have something on the lowest [[Maslow's hierarchy|Maslow Hierarchy]] rung would you not jeopardise the anonymous other? | ||
== Externality Minimisation == | == Externality Minimisation == | ||
Quantifying externalities is very difficult as many externalities are quantitative. For instance strip mining a coal field would ruin a beautiful view of nature which would last for as long as humans are alive, so would this not be priceless? A better thought experiment is the humble cup of coffee. | Quantifying externalities is very difficult as many externalities are quantitative. For instance strip mining a coal field would ruin a beautiful view of nature which would last for as long as humans are alive, so would this not be priceless? A better thought experiment is the humble cup of coffee. | ||
=== The Cup of Coffee === | ==== The Cup of Coffee ==== | ||
The humble cup of coffee is a brilliant example as to the issues in business associated with externality minimisation. First we should set the scene and ask: ''What would be the most ethical (including environmentally friendly') way to serve someone coffee in a cafe?'' | The humble cup of coffee is a brilliant example as to the issues in business associated with externality minimisation. First we should set the scene and ask: ''What would be the most ethical (including environmentally friendly') way to serve someone coffee in a cafe?'' | ||
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A company which is most ethical would want to have the highest addition of points. However, there is often a direct correlation as to the higher amount of points the more costly the solution, i.e. organic will always cost more the non-organic just on the principle that it is more niche. | A company which is most ethical would want to have the highest addition of points. However, there is often a direct correlation as to the higher amount of points the more costly the solution, i.e. organic will always cost more the non-organic just on the principle that it is more niche. | ||
=== For Externality Minimisation (FEM) === | |||
Any business before inception should figure out its entire externality and profits should be primarily routed to externality minimisation before anything else. This type of business is called a For Externality Minimisation (FEM) business and is one of the forming principles of the '''[[tenet]].''' | Any business before inception should figure out its entire externality and profits should be primarily routed to externality minimisation before anything else. This type of business is called a For Externality Minimisation (FEM) business and is one of the forming principles of the '''[[tenet]].''' | ||
Latest revision as of 17:52, 28 September 2022
An externality is a cost or benefit caused by a producer that is not financially incurred or received by that producer. In business, if a corporation is looking to maximise profit it will aim to privatise benefits and socialise the costs.
It's easy to come to the opinion that there is an evil villain capitalist making lots of money and pumping negative externalities into the environment. Whilst this may be true in some cases perhaps the relativity of ethics can excuse some of the culprits. If you did not have something on the lowest Maslow Hierarchy rung would you not jeopardise the anonymous other?
Externality Minimisation
Quantifying externalities is very difficult as many externalities are quantitative. For instance strip mining a coal field would ruin a beautiful view of nature which would last for as long as humans are alive, so would this not be priceless? A better thought experiment is the humble cup of coffee.
The Cup of Coffee
The humble cup of coffee is a brilliant example as to the issues in business associated with externality minimisation. First we should set the scene and ask: What would be the most ethical (including environmentally friendly') way to serve someone coffee in a cafe?
To answer this question you would first need to define what the maximum, most ethical would be. To do this you would need to break down what the business does.
Cup
Styrofoam (worst 0 points) ---> plastic (better 1 point)-----> Cardboard (best 2 points) ----> where does the cardboard come from?
Lid
Plastic (worst 0 points) ----> Paper (better 1 point) ----> Compostable (best 2 points) ---> does it actually get composted?
Coffee
Slave labour sourced (worst 0 points) ----> Organic (better 1 point) -----> Fair trade (best 2 points) ---> are these standard properly regulated?
Labour
Logistics
A company which is most ethical would want to have the highest addition of points. However, there is often a direct correlation as to the higher amount of points the more costly the solution, i.e. organic will always cost more the non-organic just on the principle that it is more niche.
For Externality Minimisation (FEM)
Any business before inception should figure out its entire externality and profits should be primarily routed to externality minimisation before anything else. This type of business is called a For Externality Minimisation (FEM) business and is one of the forming principles of the tenet.