Mirrored externalities.

• Author: Sun, Lisa Grow
• Position: Introduction through II. Factors That Influence the Choice of Frame B. The Availability of a Compelling Villain, p. 135-160

ABSTRACT

A fundamental but underappreciated truth is that positive and negative externalities are actually mirror reflections of each other. What we call "mirrored externalities" exist because any action with externalities associated with it can be described as a choice to do or to refrain from doing that particular action. For example, if a person smokes and thereby creates a negative externality of more secondhand smoke, then her choice not to smoke creates a positive externality of less secondhand smoke. Conversely, if a person's choice to get an immunization confers a positive externality of reducing vectors for disease transmission, then a choice not to get an immunization necessarily imposes negative externalities on third parties in the form of more vectors for disease. In each set, the negative externalities are the inverse--the mirror image--of the positive externalities. Thus, we have two possible characterizations or framings of any decision, one of which focuses on negative externalities and the other of which focuses on positive externalities. Which framing tends to predominate may be influenced by a number of factors, including society 's baseline sense of the actor's legal or moral entitlement to engage in (or refrain from engaging in) particular behavior, the availability of a villain to whom to ascribe negative externalities, and the relative invisibility of certain externalities until disaster strikes, when the negative framing becomes the face of the crisis.

Ultimately, the framing of externalities has profound effects on both the way we think about and process externalities and on our politics and policy development. We see profound potential impacts of framing on human perception of risk and opportunities, particularly due to the implications of the Nobel Prize-winning work of behavioral economists Amos Tversky and Daniel Kahneman. Their work on human perception suggests that due to loss aversion, the availability heuristic, and our bimodal response to catastrophic risk, we will give much greater weight and attention to negative externalities and consistently undervalue positive externalities. While positive externality frames are more effective in inspiring voluntary action, negative frames have serious implications for policy decision-making. The choice to emphasize either the positive or negative externality in the mirrored set shapes the array of policy prescriptions we are likely to consider. The same choice may affect whether we think there is a real problem to be solved in the first instance. We find loss aversion at work in policymaking as well: negative externalities, we suggest, are often viewed as a call to action, while positive externalities are viewed merely as an occasion for celebration. Lastly, the negative-externality "call to action" is often a concerted campaign to redefine the legal and social meaning of particular activities.

Given the critical role externalities play in justifying both development of property rights and intervention in markets and individual liberties, understanding mirrored externalities and the consequences of our framing of them is vital.

INTRODUCTION

Externalities are ubiquitous. (1) Moreover, the existence of externalities is one of the most commonly proffered, and most widely accepted, arguments for government intervention in markets and individual liberty. (2) Externalities likewise feature prominently in accounts of the development of property rights. (3) And, despite their importance, our understanding of externalities is often quite incomplete.

Externalities seem simple, at least at first glance. We can easily define negative externalities as costs an actor imposes on third parties. We might further note that because an actor imposes these costs on others, the actor is unlikely to take them into account adequately in his decision-making. In contrast, we could describe positive externalities as benefits that an actor's decisions confer on third parties--benefits that, again, the actor is unlikely to account for in his decision-making, as he does not capture those benefits for himself. On closer examination, however, this simple explanation of externalities belies considerable complexity.

Consider the memorable example that Coase introduced more than fifty years ago of the rocky relationship between two neighbors--a rancher and a farmer. (4) The main point of friction between the two was that the rancher's cows wanted to eat the farmer's crops. Coase explained that we might think about the externalities imposed on the farmer, which took the form of crops destroyed by the straying cattle. Yet, everything was not peaches and cream for the rancher either. He likewise could complain of externalities from the farmer's actions: the farmer's crops attracted the rancher's cows, which made it much more difficult for the rancher to corral and care for the wanderprone cattle.

Given that the farmer's and rancher's benefits and costs were just the converse of each other, how should we consider the externality? Coase's question spurred a sea change in economic and legal scholarship. Among other things, scholars have attempted to help us think through factors we ought to consider when unpacking the question of who to hold responsible for externalities. (5) We have also learned that in allocating liability for externalities, societal norms and perceptions tend to trump law, politics, and economics. (6)

While Coase's insights into reciprocal bilateral externalities--where one neighbor's cost is the other neighbor's gain--are well established, this Article attempts to tease out another wrinkle of externalities and posits an additional mirrored dimension of externalities. The mirror's inflection point is between negative externalities (costs imposed on third parties) and positive externalities (benefits conferred on third parties).

Using Coase's example, regardless of which party we focus upon as the source of the externality, we could deem that party's potential decision as creating either negative externalities or positive externalities. Focusing on the rancher, for example, we could characterize a rancher who chooses to allow his cattle to roam as imposing a negative externality on the farmer in the form of destroyed crops. Alternatively, we could discuss a rancher who stops his cattle from roaming as conferring on the farmer the positive externality of preserved crops. The same logic would hold if we characterized the farmer as the source of the externality.

Unlike the mirrored relationship focused on by Coase, which has spawned a rich body of scholarship, the notion that positive and negative externalities are actually mirror reflections of each other is a fundamental but underappreciated truth. Indeed, this basic insight, a concept we call "mirrored externalities," has been almost entirely neglected in the literature. These "mirrored externalities" exist because any action with externalities associated with it can be described as a choice to do or to refrain from doing that particular action. That is, if an act results in a negative externality, refraining from that act necessarily creates a positive externality, and vice versa. As a result, any potential decision that implicates externalities can be described, alternatively, as acting or failing to act and thus can be framed as creating either negative or positive externalities.

Since this mirrored property of positive and negative externalities sits at the heart of this Article, it is worth considering a few more examples for the sake of clarity. A textbook example of an action conferring positive externalities on society is an individual's decision to be vaccinated. The positive externality will come as no surprise: the vaccinated individual's resulting immunity contributes to "herd immunity" that confers protection on the community at large and on unvaccinated individuals, in particular.

However, this classic example of a positive externality could easily, if perhaps somewhat less naturally, be recharacterized as a negative externality. We could construe the decision to remain unvaccinated as creating a negative externality: the unvaccinated individual is a potential disease vector and may transmit infectious diseases to others.

We find the same mirrored property when it comes to quintessential negative externalities. Consider a classic example of a negative externality: the harm associated with pollution arising from industrial processes. The pollution may result in higher health costs and increased environmental degradation. To the extent that this is true, it is equally true that cutting back on those processes would result in the positive externalities of health savings and environmental preservation.

In legal scholarship, the few scholars who have noted in specific contexts that positive and negative externalities can be mirror images of each other (7) have done so primarily in passing and have not explored the questions of framing: what factors influence whether mirrored externalities are framed as negative or positive and how does framing influence individual and policy choices? (8) And yet, how we frame the externalities associated with a particular decision or issue can have a profound effect on how individuals process those externalities and how the legal system responds to them. This Article explores these critical, but neglected, questions.

Part I of this Article provides a foundational backdrop for our consideration of mirrored externalities. It introduces our conception of mirrored externalities and provides a brief sketch of the framing issues involved. This Part then explores ten examples of mirrored externalities and their framing. The first five are drawn from archetypal narratives of externalities in the literature. The following five demonstrate the diverse array of policy contexts in which questions of externalities play a central role. Part I concludes with a...