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greed as the operating framework. These choices are ultimate value judgments ,
and need to be recognized as such.
Imperfect Property Rights
Returning to the main argument concerning externalities, there is an impor-
tant implication for the notion of property rights. In essence, economic activ-
ity is simply the buying and selling of property rights. A buyer of a car or a
head of lettuce is giving up the property rights to money in order to secure
the use rights to drive the car or eat the lettuce. The auto dealer or the grocer
does the reverse in accepting the right to use the money (the sales proceeds)
by giving up the rights to the car or the lettuce. Exchange has occurred.
This is an example of final-product-market activity. The same holds true
in resource markets wherein the buyer and seller relationship is reversed.
Thus, an individual sells to an employer the right to his or her time when he
or she accepts a job.
Markets work well to the extent that these property rights are exact and
strictly adhered to. In other words, the right to use the good or service must
be clearly and unambiguously owned by the seller and thus able to be con-
sumed or used solely by the buyer.
If these conditions (exact ownership, free transferability, and exclusive
rights of use) all hold, convention says the system has perfect property rights.
The meaning of this for externality theory is fundamentally important: Only
the buyer and seller of a good or service are affected by the production, sale, or con-
sumption of a good or service. In other words, externalities do not exist.
In this ideal world, it could be said that a free-enterprise market economy
is the best possible way to organize the meeting of material necessities of
both individuals and entire societies. However, this is a very restrictive con-
dition—a fact ignored in the much-simpler world of Adam Smith. In truth,
no property right is innately perfect. Our actions—especially in this increas-
ingly crowded world—affect others. In the remainder of this chapter, we do
our best to demonstrate that pursuing an economic state of affairs, which
clings to this “zero-externality,” idealized methodology, has resulted in seri-
ous crisis conditions for both the economy and the environment.
Proceeding through Example—The Paper Mill
An effective way to proceed in elaboration of the above assertions is through
an extended example, which we use to elucidate both the terminology and
 
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