Accounting For Externalities: Harnessing The “Face-In-The-Mirror†Phenomenon

Hugh M. Cannon, James N. Cannon, Ahmet B. Koksal, Swati Verma

Abstract


The principle of “externalities†grows out of the interdependence of consumption – the fact that some private decisions create positive or negative utility for other people who had no voice in the decision. Positive externalities discourage economically appropriate spending because those who would otherwise spend can enjoy the benefits without having to pay; negative externalities encourage economically inappropriate spending because those who would otherwise have to pay a higher price to compensate others for the dissatisfaction they create enjoy an artificially lower price. This paper discusses an approach for addressing externalities by harnessing students’ natural inclination toward ethical behavior.

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