Externality and Institutions

Abstract Debate over the important concept of externality has influenced economists' perception of the role of governing authorities and has become central to the appraisal of the economy-ecology connection. There are however many ambiguities in the characterization of this concept. The book examined ideas of externality and some of the ways that these have influenced econmics. The author provides a distinctive and non-technical survey of the various methodological approaches taken by economists to the issue of externalities. The difficult issue of defining or characterizing externality is traced to the inadequate treatment of institutions in economic analysis. A richer understanding of the economic function of institutions is critical to understanding certain limitations of mainstream economic theory, as well as the means to overcome them. The book's major theme is an exploration of institutional inefficiency and the implications of incorporating organizational costs into economic models.