0 damage caused by a company's activities for which it does not pay, or something positive created by it for which it does not receive payment: --
Governments, through laws and regulations, attempt to transfer the costs of externalities such as pollution back to the responsible parties.
A simulation is used to study the impact of environmental payments to upland households in exchange for allocating labour away from the externality-producing activity.
The model demonstrates how, in the presence of externalities and feedbacks, payments to upland workers could produce income gains for both upland and lowland households.
Along one set of paths, externalities reinforce incentives to engage in externality-producing activities.
The sub-game perfect equilibrium extraction paths (and payoffs) of the closed-loop solution incorporate both the stock and strategic externality.
Along alternative paths, externality avoidance generates a self-reinforcing incentive that pulls labour away from the externality-producing activity.
Examples of externalities include negative environmental effects such as pollution and the unsustainable depletion of natural resources.
These systems have diversity in time because producers must manage externalities that change.
Our paper addresses the question of how the pension formula has to be adapted in order to incorporate the externalities in some sense of optimality.
