Externality

with colors that show the rise of temperatures of the surface of the earth in the last decade. This phenomenon is an example of negative externality for the planet, which is facing the consequences of greenhouse gas emissions issued by human activity. ]]

An externality is a situation in which the costs or benefits of production or consumption of some good or service are not reflected in its market price. In other words, externalities are those activities that affect others without them paying for them or being compensated. Externalities exist when private costs or benefits are not equal to social costs or benefits. The two most important types are external economies (positive externalities) or external diseconomies (negative externalities). For better clarification: an externality is the "negative or positive effect of the production or consumption of some agents on the production or consumption of others, for which no payment or collection is made".

Jean-Jacques Laffont gives a commonly used definition: Externalities are indirect effects of consumption or production activities, that is, effects on agents other than the originator of such activity (and) that do not work through the system of prices. In a competitive private economy, equilibria will not, in general, be Pareto optimal, since it will only reflect private (direct) effects, and not social (direct plus indirect) effects, of economic activity. Technically this is interpreted as as: "any indirect effect that either a production or consumption activity has on a utility function or on a consumption set or production set".

Externalities are generally classified as negative externalities, when a person or a company carries out activities, but does not bear all the costs, effectively passing on to others, possibly society in general, some of their costs; and positive externalities, when that person or company does not receive all the benefits of its activities, with which others —possibly society in general— benefit without paying. Recently, there is talk of a third group: positional externalities.

Economists such as Friedrich von Hayek and Milton Friedman sometimes refer to externalities as spillovers.

Beyond the effect on individuals or groups, it is considered, from the economic point of view, that the effect of externalities is to distort the market and, consequently, the efficient allocation of resources in an economic system.

Origin and evolution of the concept

The study of economic activities whose benefits and costs extend beyond those who directly use or implement them can be traced to Adam Smith, who, in book 5 of The Wealth of Nations and with After a long and detailed analysis in relation to things such as the administration of justice, national defense, and other institutions (such as education) and public works, etc., he concludes by arguing that since these activities are established for the general benefit of the whole society it is reasonable, therefore, that they should be borne by the general contribution of the whole society, all the different members contributing, as far as possible, in proportion to their respective capacities. However, Smith makes it clear that, in his opinion, those expenses should ideally be covered by those who benefit most immediately and directly. For example, students can pay for their education, and tolls "relieve the general revenue of society of a very considerable burden." (Smith - op. cit, book 5: Conclusion)

Externalities and economics

The discussion at this time (xix and xx centuries) it focused, as was typical of the classical school, on general effects, which allowed either the gaining of benefits without contributing or the suffering of consequences without benefits. The classic example is the construction of a lighthouse, which will benefit trade in a port and, through it, in a region, but at the same time it will have some negative effects, increasing vehicular traffic and the cost of housing, etc. It happens that not necessarily all those who benefit will be willing to contribute to the financing of the work (see problem of the stowaway). The obvious solution would be to resort to some tax, but in that case some of those who suffer the negative consequences may end up paying.

The situation endured along those "general benefits" lines; arguments generally focusing on extension and implementation matters: it is not always convenient or practical to charge direct users on every occasion on, for example, the streets of towns and cities or the benefits of widespread free public education may be seen as the students more than justify the fact that they are financed communally. Likewise, it is not necessarily the best option that matters of justice are open to considerations of "payments", etc.

The study of these phenomena was profoundly modified with the appearance of neoclassicism. Alfred Marshall notes, in his work Principles of Economics (1890) that there are not only "general" benefits or costs but also "sectoral" and even individual ones. Additionally, Marshall emphasizes that these effects are unexpected results: some companies obtain a reduction in costs that are not the result of their own actions, but originate externally due, for example, to the expansion of the market or better quality in labor, a consequence of access to better levels of health, education and culture provided by other firms or by society as a whole. For Marshall then, the scope of the concept refers to effects that are external to the company, but often internal to the industry in general. Mishan simply puts the Marshallian argument in the following terms:

Assuming that all firms are equally efficient, an expansion of the competitive industry due to, for example, the incorporation of a new firm reduces the average costs of all other firms, including the new one. Since the total cost reduction experienced by all intra-marginal firms is attributed to the entry of the new firm, the real cost of additional production is not the total cost calculated by this firm, but that total cost less the savings experienced by other firms.

E. J. Mishan

This new concept, which Marshall calls external effects, was introduced in order to explain the economies of scale, which Marshall had observed, through a proposal of decreasing costs with increasing of production. This suggestion seems, at first sight, to be directly opposed to the "law" of diminishing returns, which generated, and still generates, some discussion (see, for example, Bifani, op, cit). However, further analysis suggests that such a contradiction may only be apparent.

It is generally considered that it was Arthur Pigou () who initiated the modern analysis of «external effects», deepening the Marshallian analysis in his Economics of Welfare (1920) Pigou is interested in the relationship between the individual and social effects of the phenomenon: «the relationship that should be established between the value of the private net marginal product and the social net product». When social benefits exceed private benefits (a situation that Pigou calls positive effects) the company will tend to produce less than what is socially desirable, since it is receiving benefits that are lower than the utility provided by its products (being specific: it is selling at a price less than optimal to maximize your profit). Conversely, when private benefits are greater than social benefits (negative effects), the company will tend to produce more than is socially desirable, since it is effectively transferring part of its costs to third parties. (again, being specific: you are making a higher profit than would be possible if all costs were considered)

This, in Pigou's opinion, justifies state intervention in order to correct what is perceived as a market failure. (see Pigou and the welfare economy), an intervention that would take the form of a subsidy for companies that produce positive externalities and a tax in the case of negative externalities. This gave rise to the so-called Pigouvian taxes. William Baumol is generally considered to have been instrumental in adapting these proposals to contemporary economic conceptions, in his work On Taxation and the Control of Externalities (1972).

In Baumol's opinion, externalities can be classified as beneficial, those that create external benefits to those who are directly involved in the production of the goods in question; and detrimentals, those that impose a cost on others. The main effect of externalities is to distort the rational or efficient allocation of resources: in theory, economic resources are allocated through the supply and demand mechanism with maximum efficiency. But if the market prices do not correspond to the real costs or benefits, the mechanism does not work.

At about the same time as Baumol's original work, Ernst Friedrich Schumacher reintroduced the consideration of "general" effects of externalities, in his book Small is Beautiful (1973), suggesting that these "Market failures" are "systematic defects" in an economic system that equates the best with the best. “Of course, companies create useful products and jobs. However, the robotic calculation that drives them forces them to pay as little as possible for the resources they use and to pass on as much of their costs as possible to others, be it workers, taxpayers, future generations, or nature. This happens every day, automatically and massively, with no one able to stop it." Saying the above is not, in the opinion of Schumacher's supporters, great news, "what is new is that the accumulation of these externalized costs has reached the point where the biological integrity of our planet is in serious danger".

Even before (1968) Schumacher's contribution, Garret Hardin had published his Tragedy of the Commons, in which he suggests that the solution to the problem of unrestricted abuse and demand over natural resources lies in the incremental restriction of some rights or freedoms.

The above has given rise to the consideration of ecological aspects and sustainability in relation to matters of economic growth.

Externalities and standard of living

Mark Sommer has excellently highlighted the not always clear relationship that exists in the standard of living of the inhabitants of a developed country measured in terms of well-being and the way in which an increasing level of well-being requires a lot of externalities also growing, which end up falling on people and countries "invisible" and alien to said inhabitants. Too often, the countries, classes and people with the greatest economic power use this power to raise their standard of living at the expense of others, that is, at the expense of the externalities through which the increasing costs of said economy are passed on. welfare to other countries, classes and people:

By building an economy and a culture with the escapist premise of perpetuous convenience and comfort, Americans have not been able to realize that the weight of their promised well-being is being held by multitudes of other seemingly invisible living beings, whose own well-being is damaged and whose survival is being jeopardized precisely by that burden that is alien to them.

In itself, the desire to escape from heavy tasks and discomfort is not an exclusive human impulse of the Americans. The problem is in the religious worship of comfort as the highest good of life and in the deliberate carelessness of the terrible hidden price that the comfort of one requires many others.

In short, Americans also pay a high price, both in personal dissatisfaction and as a result of revenge against them by others not as privileged.

The economists have a name for the unrepaired disorders by those who created them: "externalities". As no other civilization in human history, the Americans generated a mountain of "externalities" for which they and other generations both future and present will eventually pay.

One would have to add, in compensation, the enormous positive externalities that Americans have generated, ranging from innovations in medicine to cultural contributions, passing through all kinds of ideas, services and products to see the complete picture. Perhaps the most important positive externality, due to its conspicuous and current nature, originating from North American technology is found in the release of all the information obtained through artificial satellites (communications and Earth sciences), to the development of software free and untold positive consequences of today's technology largely developed in the United States. Wikipedia itself is an example of this recent development, whose technical, social and economic impact on our society is still far from exhausted. Also, the release of satellite information obtained by NASA and other North American government organizations (and other parties) are helping to understand and enrich the information and scientific knowledge of our planet, an understanding that has no borders thanks to the benefits and technological advances of the United States government are made, by law, available to everyone.

Externalities and the environment

Fireplace in the urban environment to extract smoke from the home that serves as heating. The circular leaves of the mobile extractor help to remove the air from the inside, as can be seen in the dark part of the asps. This smoke is dissipated on the outside, except when there is a thermal investment in the low atmosphere that spreads ground-based pollution. In such cases, an excessive risk of contamination should be alerted to limit its effects.

Externalities occur frequently in activities related to the environment, in cases where property rights are not well defined. A classic example is air or water pollution. The solutions that are applied in reality usually include both taxes and subsidies and regulation. The allocation of greenhouse gas emission rights according to the Kyoto Protocol would be an example of the allocation of property rights.

The clearest explanation of negative ecological externalities in the construction of infrastructure works is indicated in a quote from Barry Commoner:

Clearly, we have compiled a record of serious failures in recent technological encounters with the environment. In each case, the new technology was brought into use before the ultimate hazards were known. We have been quick to reap the benefits and slow to comprehend the costs.

We have definitely collected a record of serious flaws in recent applications of technology to the natural environment. In each case, the new technology has been applied without even knowing the new dangers of these applications. We have been very quick to look for the benefits and very slow to understand their costs.

Barry Commoner

The image of a street in Cardiff illustrates the problem of negative externalities of urban population growth: coal heating may not have caused very serious pollution problems to begin with, but when this type of heating increases to thousands and even millions of homes in a big city, these problems multiply in an exaggerated way, so their governments have to take drastic measures. The example of London in the middle of the xx century, where more than 5,000 people died in one week from the concentration of smoke, ash and carbon dioxide from domestic heating was a milestone in the adoption of anti-pollution measures. And modern cities that have a non-polluting type of heating now have a new pollution problem: that from millions of cars with internal combustion engines. In fact, in many cities car use is restricted when pollution levels reach a previously established limit.

Thus, transportation through the use of automobiles generates levels of pollution that both those who use these automobiles and simple pedestrians in a city have to endure. And with the consumption of tobacco, the externalities, both positive and negative, that this consumption entails are very clear. For example, we know that a smoker has a much higher risk of contracting cancer (especially in the respiratory tract) than a non-smoker. However, both tend to pay similar health insurance premiums. In this case, the smoker is the recipient, indirectly, of a positive externality while the non-smoker is paying for costs that, in fairness, do not correspond to them, at least as far as respiratory tract cancer is concerned. What would be fair would be for smokers to absorb higher costs from the health system, equivalent to the average difference in the treatment of said form of cancer between the two groups in question. Fortunately, the decision of many countries to completely eliminate smoking in public places has come to solve, at least to a large extent, this problem.

Classification

Externalities are currently classified as positive; negatives and positionals.

Effect of positive externality.

• Positive externality: occurs when the actions of an agent increase the well-being of other agents of the economy. For example, suppose there is a cultivation of fruit trees in a particular place. Neighbor is a company that extracts honey from bees. Bees, to produce honey, need the nectar of the flowers; in turn, for the trees to give fruit, it is necessary that there is a pollination, which is facilitated by the movement of flower insects in flower. Therefore, without paying for it, the owner of the trees is benefiting from positive externality because of the fact that the neighbor produces honey of bees and has bees close to their cultivation. In the same way, the neighbor is receiving positive externality, produced by the cultivation of trees, by the fact of having close the flowers of these.

Effect of negative externality.

• Negative externality: occurs when the actions of an agent reduce the well-being of other agents of the economy. Suppose, for example, that there is a trout farm in a particular place. In order for trouts to grow and develop properly, they must remain in clean water free of contamination. However, in a nearby place, there is a flower crop that uses chemicals to control the plagues of flowers. By wind and climatic conditions, these chemical compounds contaminate nearby water sources, therefore the trout breeder is seriously affected by the actions of the cultivation of nearby flowers; that is, he is suffering an external negative effect (negative externality).

• Positional externalities: they refer to a special type of externality that depends on the respective position of the actors or goods, etc, in a situation. The concept was introduced by Fred Hirsh in 1976 and deepened by Robert H. Frank. An example of externality of position is the phenomenon of “over-education”—referring to higher education—in the U.S. labour market. U.S. In the 1960s, many young Americans of the middle class were considered ready for their career by completing a bachelor's degree. However, in the 1990s, many people from the same social group wished to complete a master's degree, hoping to "be better than" other competitors in the labour market, pointing to potential employers their best quality as "potential" employees. Consequently, in the first decade of 2000, some jobs in which a bachelor's degree was previously required, such as policy analysis posts, require an academic master's degree. Some economists (Frank and others) argue that this increase in "necessary" academic qualifications goes beyond what is efficient, which, essentially, is a misuse of social and personal resources that are invested in the realization of these master's degrees. Another example is the purchase of jewelry as a gift for another person, for example a spouse. A husband may seek to prove that he values his wife more than others value theirs, by buying jewelry more expensive than those others. Similarly, someone can try to prove how well it is economically through spending more than others. As in the first example, the cycle continues to worsen, as each actor seeks positions to himself as better in relation to the other actors. Popularly this is known as keeping up with the Joneses.

Externalities can occur in:

• Consumption: When consumer decisions of an agent affect the usefulness of another agent. They can be positive and negative. It is negative if, for example, our neighbor listens to music during the night affecting our dream and our right to sleep. It's positive in the case we enjoy the music because we like it.
• Production: when a company's production decisions affect the production possibilities of another company.
• In consumption and production: when, for example, a company's production decisions affect the level of utility that a consumer achieves.

Examples

Negative

A negative externality (also called an “external cost” or “external diseconomics”) is an economic activity that imposes a negative effect on an unrelated third party. It can arise either during the production or consumption of a good or service. Pollution is called an externality because it imposes costs on people who are "externals" to the producer and consumer of the polluting product. Barry Commoner commented on the costs of externalities:

Clearly, we have compiled a record of important failures of recent technology encounters with the environment. In each case the new technology was brought in use before the last risks were known. We have been quick to collect benefits and slow to understand costs.

Many negative externalities are related to the consequences of production and use of environmental items. Environmental Economics articles also talk about externalities and how they can be addressed in the context of environmental problems.

Examples for negative production externalities include:

• Atmospheric pollution from burning fossil fuels. This activity causes damage to crops, buildings (historic) and public health.

• Water pollution by wastewater industries that damage plants, animals and humans. The use of water for plant cultivation may impose negative externality on citizens of countries or states that may be affected by lack, shortage or poor water quality.

• Acoustic contamination during production processes, which can mentally and psychologically disturb.

• The negative effects of the intensive breeding of animals include the “increase in the reserve of antibiotic-resistant bacteria due to the abuse of antibiotics”; problems in the quality of air; contamination of rivers, streams and coastal waters that concentrate residues of animal origin; also, the problems of animal welfare is a result of the extreme confinement in which animals are subjected.

Examples of negative externalities in consumption include:

• Acoustic Pollution. Deprivation of sleep due to a neighbor who hears very loud music very late at night.

• Antibiotic resistance caused by antibiotic abuse.

• Passive smoker. Costs shared by decreased health and vitality caused by alcohol and tobacco abuse.

• Vehicle congestion. When more people use roads and public streets, users experience, because of this, more time in traffic and longer trips as well as increased pollution for the longer duration of travel. And the worst thing in this case is that, within the cities, there are trends in the citizen government so that policies are directed to a slowdown at a level that increases fuel consumption per km and time and, consequently, to an increase in the pollution that the entire population must suffer. The increase in people using roads also increases the likelihood of accidents.

Positives

A positive externality (also called an external benefit or economic benefit or beneficiary externality) is the positive effect of an activity imposed by an unrelated third party. Similar to a negative externality it can arise either from the production side or from the production side. Of consumption.

Examples of positive production externalities include:

• The construction and operation of an airport. This will benefit local entrepreneurs because they increase their accessibility.

• A foreign firm that shows up-to-date technology to local firms and improves their productivity.

Examples of positive consumer externalities include:

• A person who receives a vaccine for a contagious disease not only decreases the likelihood that the individual becomes infected, also decreases that others are infected through contact with this individual.

• The increase in education can bring benefits to create a more developed society, translated into greater economic productivity, lower unemployment rates, better domestic mobility and higher political participation rates.

The existence or management of externalities can increase political or legal problems.

Positionals

A positional externality "occurs when new purchases alter the relevance of the context, where the existence of a positional good is assessed."[2] Rober H. Frank gives the following examples:

If some applicants to a job start wearing expensive suits, a side effect of their actions is that other applicants are less likely to give a favorable impression to interviewers. From the point of view of any individual seeking work, the best answer will be to match the higher expenses of others, instead of losing the opportunity not to have the job. But this result can be inefficient because if everyone spends more, the probability of each successful candidate remains the same. Everyone can agree that some form of restriction of collective expenses could be useful.

Frank notes that treating positional externalities like other externalities can lead to invasive economics and social regulation.

Possible solutions to the problem of externalities

There are two fundamental approaches to possible solutions to the problem of externalities. The first derives from the approach of Pigou and others that depends mainly on state action.

The second is derived from the proposal made by Ronald Coase, later popularized by George Stigler under the name of the Coase Theorem, which establishes that: it will always be possible to obtain, through negotiation, an optimal balance between the needs of society and the inevitable externalities that are generated in the production necessary to satisfy those needs. This optimization, which does not necessarily imply the total disappearance of the externality but leads to a maximum level of welfare, depends on the property rights of the different parties being well defined and defendable, that the costs associated with the negotiations are negligible and that the actors act rationally, within the framework of general equilibrium, all of which will tend to produce mutually satisfactory solutions by compromise and compensation between the parties.

The above gives rise, at a practical level, to three main approaches:

Government control or persuasion

These attempts can be divided into two large groups: attempts at persuasion or direction by the government and attempts at direct legal control, which generally refer to negative or detrimental externalities.

• The Government may try more or less indirectly to promote or restrict certain activities, such as through taxes (negative externality case) or subsidies (positive externality case), and more generally, advocacy or deterrence activities that reflect the social valuation of external effects and allow for the internalization or realization of that value by the participants. This approach is derived directly from Pigou's proposal.

The government can also act more directly, establishing legal norms that, given the presence of externalities, set the optimum level of production or consumption.

• Prohibition or criminalization of certain activities, such as the removal of waste or garbage in public places, prohibition of the emission of excessive noise levels in residential areas, prohibition of smoking in public places, prohibition of sale or indiscriminate traffic in substances considered harmful, etc. (see for example: United States Controlled Substances Act).

• Regulation of certain activities: such as the imposition of limits or conditions in the use of certain other or common goods, for example, safety conditions in workplaces (see, for example: Committee on Safety and Health); regulations in the use of fresh water either for irrigation, to transform it into drinking water, industrial use, etc. (see water quality); regulations related to wastewater treatment. Regulation in the production, storage and use of substances considered dangerous, etc. (see for example: risks to the health of radioactivity).

Civil and contract rules

This approach is characterized by the attempt to define exactly what is involved in property rights and contracts, but leaving as much as possible to the actors themselves the implementation or defense of such contracts and rights. For example, in a closed room, smokers create a negative externality on non-smokers by making them breathe cigarette smoke. However, if, for example, property rights to air specified the air quality to which one is legally entitled, smokers and non-smokers could negotiate over appropriate compensation related to harm caused by tobacco smoke.

However, as noted above, these solutions between smokers and non-smokers are not so simple, which is why the different States have recently had to take action on the matter as it is a public health problem. As is known, it has been proven that the incidence of throat and lung cancer is several times higher in smokers than in non-smokers. As the costs of cancer treatment are very high, we find that non-smokers have a very serious negative externality because, in addition to being harmed by second-hand tobacco smoke, they have to compensate, with their contribution to public or private medicine, the higher costs incurred by smoking taxpayers. As the saying goes, they always end up paying the righteous for sinners.

If the information is perfect and there are no transaction costs associated with the negotiation, the allocation of property rights makes it possible to internalize the external effect and reach the efficient solution in the Pareto sense. The example that Coase offers is illustrative: consider the case of a farmer whose plantations are invaded by the sheep of a neighboring shepherd. If property rights are well defined, the costs of negotiation are negligible, and the neighbors act rationally, both will have an incentive to reach an agreement: either one or the other of the neighbors can offer a remuneration to whom the rightful corresponds. property right over the land in question, compensation that exceeds the potential profit for the activity that the owner carries out, thus making the alternative use more convenient and solving the problem.

Later (1970) Kenneth Arrow proposed treating externalities as due to market failure, consequently the solution is to treat them as commodities, creating a market for the purpose.

Examples of this approach include both international and national laws and agreements related to contractual responsibilities (see, for example: Contract requirements; Incoterm; etc) and rights of both producers and users and third parties, represented by things such as group or class litigation permitted under Spanish law.

Attempts to provide and correct by the State

It is not always possible to determine who is responsible for the problem, or there may not even be a group other than society itself. This gives rise to attempts at both correction and provision by the state.

For example, the air in cities will have a lower quality than the air in a pristine forest, deterioration that can reach levels that are dangerous or harmful to human health. But this deterioration is largely due, beyond the pollution due to industrial activities, transport, etc., to the fact that in cities there are many people per km² using the air.

Additionally, there are those activities that, in the words of Adam Smith, incur such costs and generate so little benefit for the provider, that few or no one is interested in carrying them out. And yet they are of general benefit. Additionally, we have those activities that are considered not in the public interest to be left to private activity.

Examples of these attempts at state provision or correction include public parks, the administration of justice; National security; health promotion programs, public education; construction and maintenance of public works, such as lighthouses; etc

Thus, for example, the provision of a park or means of transport subsidized by a government can be considered as much an attempt to correct the problems caused by poor air quality as the provision of a public good (reduction of pollution caused by private transport —number of automobiles— and provision of clean air respectively). Note that this does not imply that a private company could not offer both services, the argument is that provision at the required level and with the aforementioned intention would not offer the necessary profit to motivate private action, which requires common financing, which may take the form of a grant to a private or social enterprise. In other words, if one wants to reduce the pollution caused by the large number of cars in the center of a city, it may be necessary to offer a public transportation system whose convenience—including cost—will compensate individuals who would otherwise use their cars..

Determining the cost of externalities and compensation

Some of the above suggestions are based on the assumption that it would be possible to actually reach a general agreement among the stakeholders in order to determine an appropriate level of compensation. A preference disclosure problem thus arises, since agents might have incentives to "behave strategically" (eg, lie) about their assessment of externalities. Similarly, the allocation of property rights and the negotiation over them can give rise to either the same strategic behaviors or even some additional ones, which would prevent reaching an optimal solution. Additionally, it is not always the case that the actors have the necessary information or that the transaction costs (ie legal costs) associated with a possible negotiation are at least negligible.

Finally, it happens that the most common type of solution is a "tacit agreement between the parties" either through the political process - governments are elected to achieve political compromises between the various interests. For example, through governments passing laws and regulations to deal with pollution and other types of damage to the environment—or through social norms and customs, which may have evolved as a way to deal with external costs and benefits. Whatever the case, democratically functioning communities generally agree to address these costs and benefits through consensus. As Arrow suggests in his work (op. cit) it is a mistake to reduce common action to state action.

However, it is no less true that such agreements may be completed more quickly or effectively due to the threat of government action. In any case, it is the duty of the state to represent the general interest even when sectoral interests reach agreements. For example, a steel mill whose polluting emissions "pass through" the lungs of a large number of individuals in a geographic area, it is difficult if not impossible, and there are large transaction costs, for a single member of that general public to deal with. the producer, which does not prevent the company from reaching an agreement with the unions about preventive measures, etc., in the workplace itself.

All of the above highlights the problem of assessing both the harms and benefits of an activity and the appropriate trade-offs. Consider, for example, the case of a nuclear plant for the generation of electrical energy, whose polluting emissions could be associated with a relatively small percentage increase in cancers in the locality in which it operates. Any one of those cancers by itself could be due to causes totally unrelated to the power plant. But as a whole, this increase is related to these activities. Additionally, and consequently, the value of the properties in the nearby area lose value. On the other hand, both the company and the workers as well as society in general benefit from the provision of electrical energy in that region. What is the proper balance between damages and compensation?

A possible solution is found in the use of Game Theory to get agents to reveal their true marginal valuation of external effects, in order to design compensation mechanisms that allow reaching an efficient solution. Suggestions have been made similar ones that consider the measurement of time as a determining factor in the value of human labor, as well as of natural resources.