Hostname: page-component-8448b6f56d-c4f8m Total loading time: 0 Render date: 2024-04-16T01:20:11.578Z Has data issue: false hasContentIssue false
  • English
  • Français

Externalities as a basis for regulation: a philosophical view

Published online by Cambridge University Press:  14 January 2016

RUTGER CLAASSEN
RUTGER CLAASSEN*
Affiliation:
Department of Philosophy and Religious Studies, Utrecht University, Utrecht, the Netherlands
*
*Email: r.j.g.claassen@uu.nl
Get access Rights & Permissions [Opens in a new window]

Abstract

Externalities are an important concept in economic theories of market failure, aiming to justify state regulation of the economy. This paper explores the concept of externalities from a philosophical perspective. It criticizes the utilitarian nature of economic analyses of externalities, showing how they cannot take into account values like freedom and justice. It then develops the analogy between the concept of externalities and the ‘harm principle’ in political philosophy. It argues that the harm principle points to the need for a theory of basic interests to judge when a harm is imposed. Similarly, externality analyses should use such a theory of basic interests as the basis for judgments about legitimate state intervention. This proposal is defended against objections, and illustrated with a case study of the US Supreme Court's ruling on the Affordable Care Act, which shows how the judicial reasoning implicitly interprets externalities in terms of basic interests.

Type
Research Article
Information
Journal of Institutional Economics , Volume 12 , Issue 3 , September 2016 , pp. 541 - 563
Copyright
Copyright © Millennium Economics Ltd 2016 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Arnold, N. S. (2009), Imposing Values. An Essay on Liberalism and Regulation, Oxford: Oxford University Press.CrossRefGoogle Scholar
Barnett, A. H. and Yandle, B. (2009), ‘The End of the Externality Revolution’, Social Philosophy & Policy, 26 (2): 130–150.Google Scholar
Bator, F. M. (1958), ‘The Anatomy of Market Failure’, The Quarterly Journal of Economics, 72 (3): 351–379.CrossRefGoogle Scholar
Brighouse, H. and Swift, A. (2006), ‘Equality, Priority, and Positional Goods’, Ethics, 116 (3): 471–497.CrossRefGoogle Scholar
Brown, P. G. (1992), ‘The Failure of Market Failures’, The Journal of Socio-Economics, 21 (1): 1–24.Google Scholar
Claassen, R. (2011), ‘Making Capability Lists. Philosophy versus Democracy’, Political Studies, 59 (3): 491–508.Google Scholar
Claassen, R. (2014), ‘Capability Paternalism’, Economics & Philosophy, 30 (1): 57–73.Google Scholar
Claassen, R. (2015), ‘The Capability to Hold Property’, Journal of Human Development and Capabilities, 16 (2): 220–236.Google Scholar
Claassen, R. and Düwell, M. (2013), ‘The Foundations of Capability Theory: Comparing Nussbaum and Gewirth’, Ethical Theory and Moral Practice, 16 (3): 493–510.Google Scholar
Coase, R. H. (1960), ‘The Problem of Social Cost’, The Journal of Law and Economics, 3: 1–44.Google Scholar
Cowen, T. (1988), ‘Public Goods and Externalities: Old and New Perspectives’, in Cowen, T. (ed.), The Theory of Market Failure. A Critical Examination, Fairfax, Virginia: George Mason University Press, pp. 1–26.Google Scholar
Cowen, T. (1999), Public Goods & Market Failures. A Critical Examination, New Brunswick/London: Transaction Publishers.Google Scholar
Dahlman, C. (1979), ‘The Problem of Externality’, The Journal of Law and Economics, 22 (1): 141–162.Google Scholar
Daniels, N. (1981), ‘Health-Care Needs and Distributive Justice’, Philosophy & Public Affairs, 10 (2): 146–179.Google ScholarPubMed
Daniels, N. (2010), ‘Capabilities, Opportunity, and Health’, in Brighouse, H. and Robeyns, I. (eds.), Measuring Justice. Primary Goods and Capabilities, Cambridge: Cambridge University Press, pp. 131–149.Google Scholar
Demsetz, H. (1996), ‘The Core Disagreement between Pigou, the Profession, and Coase in the Analysis of Externalities’, European Journal of Political Economy, 12 (4): 565–579.Google Scholar
Feinberg, J. (1984), Harm to Others, Oxford: Oxford University Press.Google Scholar
Feinberg, J. (1985), Offense to Others, Oxford: Oxford University Press.Google Scholar
Feinberg, J. (1986), Harm to Self, Oxford: Oxford University Press.Google Scholar
Finnis, J. (2011), Natural Law and Natural Rights, Oxford: Oxford University Press.Google Scholar
Frank, R. (2008), ‘Should Public Policy Respond to Positional Externalities?’, Journal of Public Economics, 92 (8–9): 1777–1786.CrossRefGoogle Scholar
Gewirth, A. (1978), Reason and Morality, Chicago: The University of Chicago Press.Google Scholar
Griffin, J. (2008), On Human Rights, Oxford: Oxford University Press.Google Scholar
Hatzis, A. (2015), ‘Moral Externalities: An Economic Approach to the Legal Enforcement of Morality’, in Hatzis, A. and Mercuro, N. (eds.), Law and Economics: Philosophical Issues and Fundamental Questions, Oxon/New York: Routledge, pp. 226–244.Google Scholar
Hausman, D. (1992), ‘When Jack and Jill Make a Deal’, Social Philosophy and Policy, 9 (1): 95–113.Google Scholar
Hausman, D. (2008), ‘Market Failure, Government Failure, and the Hard Problems of Cooperation’, Ethics and Economics, 6 (1): 1–6.Google Scholar
Heath, J. (2005), ‘Liberal Autonomy and Consumer Sovereignty’, in Christman, J. and Anderson, J. (eds.), Autonomy and the Challenges to Liberalism. New Essays, Cambridge: Cambridge University Press, pp. 204–225.CrossRefGoogle Scholar
Heath, J. (2006), ‘Envy and Efficiency’, Revue de Philosophie économique, 7 (2): 3–30.Google Scholar
Herzog, D. (2000), ‘Externalities and Other Parasites’, The University of Chicago Law Review, 67 (3): 895–923.Google Scholar
Holtug, N. (2002), ‘The Harm Principle’, Ethical Theory and Moral Practice, 5 (4): 357–389.Google Scholar
Kashdan, A. and Klein, D. (2006), ‘Assuming the Positional: Comment on Robert Frank’, Economic Journal Watch, 3 (3): 412–434.Google Scholar
Lagueux, M. (2010), ‘The Residual Character of Externalities’, European Journal of the History of Economic Thought, 17 (4): 957–973.Google Scholar
Le Grand, J. (2007), The Other Invisible Hand. Delivering Public Services through Choice and Competition, Princeton: Princeton University Press.Google Scholar
Lewinsohn-Zamir, D. (1998), ‘Consumer Preferences, Citizen Preferences, and the Provision of Public Goods’, The Yale Law Journal, 108 (2): 377–406.Google Scholar
Macleod, C. M. (2008), ‘Market Failure, Justice, and Preferences’, Ethics and Economics, 6 (1): 1–7.Google Scholar
Medema, S. (1999), ‘Legal Fiction: The Place of the Coase Theorem in Law and Economics’, Economics & Philosophy, 15 (2): 209–233.Google Scholar
Medema, S. (2007), ‘The Hesitant Hand: Mill, Sidgwick, and the Evolution of the Theory of Market Failure’, History of Political Economy, 39 (3): 331–358.Google Scholar
Michelman, F. (1997), ‘How Can the People Ever Make the Laws? A Critique of Deliberative Democracy’, in Bohman, J. and Rehg, W. (eds.), Deliberative Democracy. Essays on Reason and Politics, Cambridge, Massachusetts: The MIT Press, pp. 145–172.Google Scholar
Mill, J. S. (1991), ‘On Liberty’, in Gray, J. (ed.), On Liberty and Other Essays, Oxford: Oxford University Press, pp. 5–128.Google Scholar
Morgan, B. and Yeung, K. (2007), An Introduction to Law and Regulation, Cambridge: Cambridge University Press.Google Scholar
Mulnix, M. J. (2009), ‘Harm, Rights, and Liberty: Towards a Non-Normative Reading of Mill's Liberty Principle’, Journal of Moral Philosophy, 6 (2): 196–217.Google Scholar
Nussbaum, M. (2000), Women and Human Development. The Capabilities Approach, Cambridge: Cambridge University Press.Google Scholar
Ogus, A. (2004), Regulation. Legal Form and Economic Theory, Oxford: Hart Publishing.Google Scholar
Pigou, A. (1960), The Economics of Welfare, 4th edn., London: MacMillan.Google Scholar
Rawls, J. (1999), A Theory of Justice, Revised. Oxford: Oxford University Press.Google Scholar
Raz, J. (1986), The Morality of Freedom, Oxford: Clarendon Press.Google Scholar
Raz, J. (1987), ‘Autonomy, Toleration, and the Harm Principle’, in Gavison, R. (ed.), Issues in Contemporary Legal Philosophy. The Influence of H.L.A. Hart, Oxford: Clarendon Press, pp. 313–333.Google Scholar
Satz, D. (2010), Why Some Things Should Not Be for Sale: The Moral Limits of Markets, New York: Oxford University Press.Google Scholar
Shiffrin, S. V. (2000), ‘Paternalism, Unconscionability Doctrine, and Accomodation’, Philosophy & Public Affairs, 29 (3): 205–250.CrossRefGoogle Scholar
Sumner, L. W. (1996), Welfare, Happiness, & Ethics, Oxford: Oxford University Press.Google Scholar
Sunstein, C. (1990), After the Rights Revolution: Reconceiving the Regulatory State, Cambridge, Massachusetts: Harvard University Press.Google Scholar
Trebilcock, M. (1993), The Limits of Freedom of Contract, London: Harvard University Press.Google Scholar
Van Parijs, P. (2011), ‘Just Democracy. The Rawls-Machiavelli Programme’, Colchester, UK: ECPR Press.Google Scholar
Waldron, J. (1999), Law and Disagreement, Oxford: Oxford University Press.Google Scholar
Walzer, M. (1981), ‘Philosophy and Democracy’, Political Theory, 9 (3): 379–399.Google Scholar
Wertheimer, A. (2002), ‘Liberty, Coercion, and the Limits of the State’, in Simon, Robert (ed.), The Blackwell Guide to Social and Political Philosophy, Malden, MA & Oxford: Blackwell Publishers, pp. 38–59.Google Scholar
Zerbe, R. O. and McCurdy, H. E. (1999), ‘The Failure of Market Failure’, Journal of Policy Analysis and Management, 18 (4): 558–578.Google Scholar