A Concise Note on Risk Externalities: A Critical Review

Emmanuel Senyo Fianu

doi:10.13189/aeb.2017.051005

Abstract

This paper provides a review of the (risk) externality literature with the aim of identifying risk externalities arising from various interactions in the economics of environmental protection. In addition, various classification of externalities that exist have been explored. It highlights how such externalities might depend on the characteristics of economic interactions coupled with their impacts. The findings of this paper show that risk externalities result from risk mitigation and reduction activities, thereby, having varying degrees of impacts, and inducing inefficiency in economic systems. In addition, empirical investigations in the context of (risk) externalities have been provided.

Highlights

Externalities have been an issue in different sectors of the economy for several decades
Alonso–Carrera et al (2004) analyze the welfare properties of the competitive equilibrium of an economy with capital accumulation; they assumed that preferences vary over time due to the existence of a process of habit formation and consumption spillovers
The focus of this paper is to explore the concept of risk externality, which is an underlying effect of most externalities in the literature

Summary

Introduction

Externalities have been an issue in different sectors of the economy for several decades. Alonso–Carrera et al (2004) analyze the welfare properties of the competitive equilibrium of an economy with capital accumulation; they assumed that preferences vary over time due to the existence of a process of habit formation and consumption spillovers They argue that individuals will not derive utility from their absolute level of consumption at a given period, rather, from the difference between consumption and a reference point. This paper contributes to the literature in the following ways: First, it identifies various (risk) externalities due to economic interactions and explore their classifications that exists. It provides the epistemological dimension of knowledge concerning (risk) externalities coupled with empirical investigations and deliberations with recommendation for further research, which could be useful for making policy decisions in the long-run.

Risk externalities

Findings

Concluding remarks