Civil Engineering Reference
In-Depth Information
EXTERNAL COSTS
These are not so straightforward, as they represent the costs of actions borne by
people other than those who commit them. They are also referred to as third-party
or neighbourhood costs. For example, consider the situation in which a construction
business dumps waste products from its building site into a nearby river or in which
an individual litters a public park or beach. Obviously, a cost is involved in these
actions. When the construction firm pollutes the water, people downstream suffer
the consequences. They may not want to swim in or drink the polluted water. The
pollution may also ruin the prospects for fishing. In the case of littering, the people
who come along after litter has cluttered the park or the beach are the ones who
bear the costs. In other words, the creator of cost is not necessarily the sole bearer of
that cost. The individual or firm does not internalise all costs - some external ones
are overlooked.
Environmental problems may be described as situations in which the external
costs exceed private costs. This is difficult for either market or command systems
to control. The problem is that some collective resources are taken for granted -
and the full costs of the economic activity are not accounted for, only the smaller
private costs relating to some of the resources. This is neither efficient nor fair,
and environmental problems can therefore be regarded as sitting midway on the
spectrum of economic systems shown in
Figure 2.5.
A society has to rely on public bodies such as the
National Audit Office
, or
its equivalent, to assess the effectiveness of government spending and measure its
impact on all resources. These activities assure that some kind of balance is achieved
Adding the environment to the spectrum showing the trade-off between equity and
efficiency brings in a third dimension which does not particularly lend itself to the
market or command system. In effect, the problem is triangulated, and meeting all
three criteria simultaneously is a difficult challenge.
Environment
Equity
Efficiency
