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Analysis Study Research Paper | Economics & Management | India | Volume 13 Issue 1, January 2024 | Rating: 4.7 / 10
Oil Industry, Environmental Externalities & Social Costs
Dr. Devashis Bose
Abstract: The paper traces the theoretical background of studying pollution emitted by the Extractive Industries like the petroleum industries as negative externalities. The study also explores loss of welfare to the third party due to transaction between two parties. Externalities are transformed in terms of cost incurred by the producers and cost to the society. These costs are transformed in terms of private costs, external costs and social costs. The paper concludes that pollution in terms of externality can be studied with the purpose to finding costs to the society and can be rationalized to pin corporate social responsibility on the erring Firms. In the literature of Environmental Economics, pollution is treated as a negative environmental externality and also is called external diseconomy. A negative externality is an external cost and is said to exist when an economic transaction and activity between two parties lead to loss of welfare to third or external party that goes uncompensated. The requisite conditions for creation of a negative externality or external cost are- 1) An economic transaction or activity takes place between two parties/agencies 2) The said transaction or activity leads to loss of welfare to an external party 3) Loss of welfare caused to the external party is compensated. Compensation of loss of welfare in any form leads to internalization of the external cost and mathematically is said to cease to exist. However, cessation of external cost in this sense implies abolishment of economic pollution that may not lead to end of physical pollution.
Keywords: Environment, Externalities, Pollution, Cost, Private and Social Cost
Edition: Volume 13 Issue 1, January 2024
Pages: 582 - 586