Whenever a cost or risk is imposed on people who are not party
to the production and consumption of a good or service, the ugly
concept of “externalities” raises its head. It is used as a
justification for all sorts of government intervention that, it
is claimed, will correct market failure. I say “ugly”, because
it is an inconsistent and imprecise formulation of a convoluted
and often intractable problem. Externalities occur when someone
other than the voluntary parties to a transaction gains a
benefit, incurs a cost, or shares a risk, without their consent,
as a consequence of that transaction. An example of a positive
externality is immunisation. When one parent immunises their
child, it benefits not only that child. Many others gain the
benefit of being less exposed to a much-feared disease. They do
not, however, pay for this benefit. Forcing them to do so when
they did not consent to the immunisation in the first place
would be a clear violation of their moral rights. Another
example is when a tenant imp