On the Relevance of Wrongfulness to the Concept of Externalities

This paper examines the concept of externalities using the concepts of rights and corrective justice as an alternative to utilitarianism and efficiency. Specifically, standard treatments of externalities in welfare economics do not consider the role of wrongfulness in the harms that economists and policymakers aim to optimize. I argue that if a harm is wrongful, involving the violation of a valid legal right, then it can be addressed through the existing system of tort law without necessarily involving mechanisms of policy or regulation. If a harm is not wrongful, however, then it should be considered an incidental and ordinary effect of interactions within a world of scarcity, which does not justify any government intervention, especially if the activity that led to the nonwrongful harm involved an exercise of the injurer’s valid rights