Externality as a coordination problem

The article redefines externality as a coordination problem stemming from the incompatibility of plans due to scarce resources. It argues that traditional views, which focus on spillover effects, obscure the reciprocal nature of the problem. The paper introduces various institutional arrangements, such as conflict, property rights, and exchange, to address plan incompatibilities, highlighting their efficiency and operational costs. By framing externalities within the context of scarcity and plan coordination, the article offers a more comprehensive understanding of the issue, challenging the conventional market-centric approach. The analysis emphasizes the importance of comparing different institutional solutions and their distributional effects, rather than simply identifying spillover effects. This innovative perspective on externalities has significant implications for both academic research and practical policy-making.