Essenziale di economia
Stanley L. Brue, Campbell R. McConnell, Sean M. Flynn
Copyright © 2010 – The McGraw-Hill Companies srl
6.2 Externalities Although Henry Sidgwick (1838‐1900) first articulated the idea of spillover costs and benefits (externalities), Arthur C. Pigou (1877‐1959) receives most of the credit for formalizing the concept. Pigou, a British welfare economist (meaning that his economic theories focuses on maximizing the well‐being of society), studied at King's College in Cambridge and later served as the chair of political economy at Cambridge from 1908 to 1943. The previous chair, Alfred Marshall, significantly influenced Pigou's thinking, as both were concerned about how to use economic theory to promote social well‐being. To illustrate the concept of spillover effects, Pigou used the example of sparks from railway engines. These sparks would ignite surrounding woodlands or farmland, destroying timber or crops. Because the owners of the land were not compensated for the damage, those directly involved in the railway transaction (for example, the railway company and passengers) were not bearing the full cost of their exchange. Pigou illustrated the idea of spillover benefits through an example of someone planting a forest. The reforestation benefited surrounding property owners through natural seeding of their vacant land, yet no compensation was paid for the benefit. As a result, said Pigou, less tree planting occurred than was optimal from society's perspective. Pigou is also known for his contributions to the aggregate demand‐aggregate supply model (the "real balances effect"), and to theories of price discrimination. He also argued that a more equal distribution of income would increase social welfare. "Any transference of income from a relatively rich man to a relatively poor man of similar temperament, since it enables more intense wants to be satisfied at the expense of less intense wants, must increase the aggregate sum of satisfaction."(1) Pigou's reasoning was that the marginal utility of a dollar for a poor man was greater than for a rich man, and so by transferring dollars from the rich to the poor, the net gain in social welfare would be positive. 1.
A.C. Pigou, The Economics of Welfare, 4th ed. (London: Macmillan, 1932), 89. [Originally published in 1920.] Photograph courtesy of: (c)Corbis # EIS0073 Essenziale di economia
Stanley L. Brue, Campbell R. McConnell, Sean M. Flynn
Copyright © 2010 – The McGraw-Hill Companies srl