Externality

This chapter identifies the environmental conditions favorable to voluntary exchange and those susceptible to external cost imposition, and the consequences of each for efficiency. When someone takes a legally recognized right from another without consent or compensation, an external cost is imposed. Externality is theft. There’s no externality until the law gives the cost bearer a right to be free of the costs imposed, so imposing an external cost means stealing this right, or entitlement, which always creates an injustice for the law that requires a liability proceeding to force the cost imposer to compensate the owner and complete the unfinished involuntary exchange begun by the theft. But externality isn’t always inefficient, and forcing thieves to pay a compensatory liability price won’t necessarily deter the thefts. Absolute deterrence of externality would deter these thefts whether they’re efficient or not, but tort and criminal liability seek only full compensation, not absolute deterrence.