Shouldn’t we be doing more to respond to the climate emergency? It’s a natural question to ask. But, perhaps, we should turn the question around, and ask: why haven’t we solved the climate change problem already?
Economics suggests a ready answer: externalities. Unfortunately, the concept of externalities is a century old, and it shows. So why do economists persist in using this dusty old term, and is it still useful?
An externality is a cost — or sometimes, a benefit — that is not borne by either the buyer or the seller of a product. And, if neither has to bear the cost, neither has much reason to care.
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