Tuesday, August 24, 2010

Bacteria and externalities

The Economics Anti-Textbook accuses the standard texts of downplaying the importance and ubiquity of externalities. One of the examples that never made it into the book (because of the need to keep Chapter 7 from getting too long) was that of the over-use of antibiotics, much of which are fed to animals kept in close quarters in the industrial food system. This involves an externality because the use -- and particularly the mis-use) -- of antibiotics speeds the evolution of antibiotic-resistant bacteria, which will lead to significant trouble in the future. The cost of speeding up the arrival of that trouble is not being borne by the users of antibiotics today. I was interested to see towards the end of this gloomy article in the Guardian, a mention of the idea of a Pigouvian tax to address the externality problem.