Externalities - Economics and Ecology: United for a Sustainable World - page 82

the underlying basic principles. Any reasonable example must include sem-
inal characteristics. First, a typical act of production or consumption (i.e.,
resource allocation) is identified. Second, the pattern of resource allocation
results in scientifically identifiable technical or physical impacts, in addition
to the obvious economic flows as the product is produced, sold, and con-
sumed. Third, potential misallocation of resources is identified, as well as
the policy implications, including potential legal liabilities, regulation, and
political actions.
Assume the existence of a paper mill in a small to medium-sized town
located in a timbered area of our country. The factory, located in a town
on a river, produces and sells paper, employs people, and creates revenue
for the owner of the mill. In the course of production, as has obviously
been the case throughout the actual history of this industry, smoke and
chemically laced fumes escape into the air, and toxic effluents enter the
adjacent waterway.
Our purpose is to facilitate both a technical and value-based understand-
ing of the problem's implications, which arise from the use of externality
theory, as it is structured. In other words, this effort is intended to critique
economics —not to analyze or solve the environmental issues being raised.
First, we must identify the parties to the bare-bones economic transaction.
There are four broad categories, including (1) the owner or owners of the
mill, (2) the suppliers of all the inputs necessary to the production of paper,
(3) the consumers or final users of the paper, and (4) the sales and distribu-
tion network. Each of these requires a bit of elaboration.
There may be one owner, or more likely a corporation, whereby any stock-
holder can legitimately consider himself or herself to be an owner in position
to profit from the production and sale of paper. The suppliers include those
who log and haul the timber to provide wood pulp, energy, chemicals, or any
other raw material necessary to the paper-production process. Certainly, the
major supplier of inputs is the labor force, or the people who work for the
paper company and therefore earn their livelihood from it. Consumers seek
to purchase and use the paper and, of course, expect to pay for it at some store.
Finally, there is a broad network of those who package, transport, distribute,
and market the paper, down to the local store that stocks it on the shelves
(along with many other products) and deals directly with the customer.
In summary, all these economic actors have a stake in the existence of
paper as a product. Some make virtually all their income, some make a por-
tion of their income from the production of paper, whereas others simply
gain satisfaction through its purchase and use. Each is exchanging property
rights as they become involved in the various markets: valuable inputs for
money, labor for money, services for money, or money for the product. In an
ideal world, as we saw in the previous section, all these property rights are
perfect. All of the transactions, including the choice to work for the paper
company, are voluntary and thus self-maximizing, and no one is affected
outside the group of these identified parties.