Externalities from Concentrated Animal Feeding Operations
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Date
2014
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Department
Economics
Program
Bachelor's Degree
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Abstract
Classical economics is based upon three assumptions about the firms and individuals that partake in the market: they are goal-oriented, meaning that they are interested in fulfilling their own personal or private goals; they are rational, meaning that their behavior is the result of privately considered costs and benefits; and they must deal with scarce resources, meaning that there is not enough time, resources, or money to fulfill all of their wants and needs. That is, when individuals and firms operate and make decisions, they do so in a way that maximizes their personal utility given the constraints and limitations associated with finite resources.
However, not all decision making can be viewed in isolation for each individual or firm. In many cases, decisions affect others. Instances such as these fall under the category of market failures, which are instances where the perfectly competitive market fails to produce a Pareto optimal amount or equilibrium. These can occur in exchange or production when a non-optimal allocation of scarce resources takes place. For example, the decision to donate blood has the benefit of potentially saving the life of three other people, in addition to securing access to possible future blood transfusions to the donor and his/her family. On the other hand, the decision to build an airport near a busy subdivision may result in noise pollution that damages the residents nearby. These benefits and costs that affect individuals other than the decision maker—these external effects—have been termed externalities and can be either positive or negative. Positive externalities produce a benefit to a party other than the decision maker, whereas negative externalities harm an otherwise uninvolved party (Browning and Zupan 2009). There are many applications of the theory of externalities in the economics literature of today; one such example examines the consequences of industrial agriculture, namely livestock production in concentrated animal feeding operations (CAFOs).