Book contents
- Frontmatter
- Contents
- List of figures
- List of economic models and tables
- Preface
- Part I: Introduction to welfare economics
- Part II: Project and policy appraisal in developing countries
- Part III: Missing markets
- 12 Externalities and public goods
- 13 Risk and the measurement of welfare change
- 14 Natural resources and the environment
- Retrospect
- Bibliography
- Index
12 - Externalities and public goods
Published online by Cambridge University Press: 22 October 2009
- Frontmatter
- Contents
- List of figures
- List of economic models and tables
- Preface
- Part I: Introduction to welfare economics
- Part II: Project and policy appraisal in developing countries
- Part III: Missing markets
- 12 Externalities and public goods
- 13 Risk and the measurement of welfare change
- 14 Natural resources and the environment
- Retrospect
- Bibliography
- Index
Summary
In parts I and II of this book, the market distortions argued to provide the rationale for cost-benefit analysis took the form of price distortions caused by taxes, imperfect competition or, in the case of labour, by dualistic markets. In part III, we turn to the problems that arise when markets for certain goods and services are absent or incomplete so that market prices do not exist. In this chapter, we consider the general principles underlying cost-benefit analysis in the presence of externalities or ‘missing markets’ and look in particular at the nature of the problems posed by the existence of public goods. Chapter 13 discusses the issues raised for project and policy analysis by the presence of risk and uncertainty when insurance markets do not exist or are incomplete; and chapter 14 considers some of the environmental problems that arise from the failure to incorporate significant future costs and benefits into current decisions about the use of natural resources.
From the point of view of welfare economics, the essential problem raised by market failure is that, without markets and without prices to act as signals to producers and consumers, goods which have positive social benefits may not be provided or may be provided in inadequate quantities, and goods (or ‘bads’) which have adverse social consequences will not be discouraged.
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- Principles of Cost-Benefit Analysis for Developing Countries , pp. 199 - 218Publisher: Cambridge University PressPrint publication year: 1996