I don't understand why externalities are only when property rights are unclear/poorly enforced. Wouldn't externalities just be whenever one things effects another? Like Walt Disney buying all the land around his park because he knew it would go up in value. The external benefit of his park would be an increase the value of surrounding land. If others still owned the land and this wasn't forseen, wouldn't they be externally benefited by the park for doing nothing? Why is this directly connected to property rights and not just failure to see the full effects of an action?
Imagine if Walt didn't have the funds to build the park unless he had the money that came from an increase in surrounding property values. Only through capturing that positive externality is Walt able to undertake the marginally beneficial project. This example is used in class because some think that the government needs to fund anything that has a positive externality because we are leaving benefits that outweigh the cost on the table. Education, for example has positive externalities, but it is harder to capture the benefits in the provision of that service than it is in the example from Walt Disney's second park.
In the case of negative externalities, say your car burning gas leads in some marginal way to my lungs being worse. It is hard to me to seek legal compensation for my damaged property (my lungs) because how do I bring to court you and every other driver? Because of how hard it is to defend my lungs from carbon emissions, some may say it is appropriate for the government to tax gas to reduce the amount of emissions tarnishing the lungs of its citizens.
As for your last question, the reason the full effects cannot be seen is that, as I hopefully demonstrated in the gasoline burning dirtying the air and my lungs, is that we are not exactly able to tie the creators of the externality with those bearing the cost of the externality. Not all property rights are easily enforceable, which creates room for market participants to dirty the air. Having said that, class action lawsuits are an example of those bearing external costs grouping together to hold to account a creator of an externality, say a group suing a manufacturing plant that releases toxic chemical into the town nearby. The plant would have to pay these fees, and the consumers of whatever the plant makes would also pay a share of that lawsuit through higher prices of whatever that plant was making.
That was a great question. See me if you want to chat about it more.
In the case of negative externalities, say your car burning gas leads in some marginal way to my lungs being worse. It is hard to me to seek legal compensation for my damaged property (my lungs) because how do I bring to court you and every other driver? Because of how hard it is to defend my lungs from carbon emissions, some may say it is appropriate for the government to tax gas to reduce the amount of emissions tarnishing the lungs of its citizens.
As for your last question, the reason the full effects cannot be seen is that, as I hopefully demonstrated in the gasoline burning dirtying the air and my lungs, is that we are not exactly able to tie the creators of the externality with those bearing the cost of the externality. Not all property rights are easily enforceable, which creates room for market participants to dirty the air. Having said that, class action lawsuits are an example of those bearing external costs grouping together to hold to account a creator of an externality, say a group suing a manufacturing plant that releases toxic chemical into the town nearby. The plant would have to pay these fees, and the consumers of whatever the plant makes would also pay a share of that lawsuit through higher prices of whatever that plant was making.
That was a great question. See me if you want to chat about it more.