Making Pollution into a Market Failure Rather Than a Cost-Shifting Success: The Suppression of Revolutionary Change in Economics

Publication: Working/Discussion PaperWU Working Paper

Abstract

This paper explores core failures of environmental economics as a scientific attempt to
understand the ecological crises. The case of environmental pollution is used to show how
neoclassical externality theory evolved to establish commitment to, and dogmatic support for,
an elitist ethics and liberal market ideology. The public policy response to pollution then
recommended is to internalise externalities by correcting market prices based on monetary
valuation of the social costs (i.e., damages). Pollution as a market failure is deemed a
correctible error of the price system. This is contrast with an alternative theory of pollution
based on a classic institutional economic theory of cost-shifting that instead requires a public
policy response involving regulation and planning. Reflection on the history of thought
related to these two theories of pollution reveals how environmental economics became a
marginalised field supporting the neoclassical economic orthodoxy with full commitment to
its core paradigms. Why the critical and realist institutional approach had to be suppressed is
explained as denying the potential for a revolutionary paradigm shift in economic price
theory.
Original languageEnglish
Place of PublicationVienna
PublisherWU Vienna University of Economics and Business
Publication statusPublished - 2019

Publication series

NameSRE - Discussion Papers
No.2019/06

WU Working Paper Series

  • SRE - Discussion Papers

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