Market Imperfections, Social Costs of Strip Mining, and Policy Alternatives 1

In Francis Bator’s classification of externalities there is the ownership externality, characterized by situations where producers are unable to physically exclude users, or to control the rationing of their product among them, an example being J. E. Meade’s “apple blossom and honey production” case. Another type of externality described by Bator is the public good externality. Environmental spillovers usually embody both the ownership and public good externalities. Any environmental policy aimed at the elimination or reduction of the external environmental costs of coal production must enumerate, in value terms, the benefits and costs to be achieved. Pecuniary external effects are nothing more than the market reacting to changes in demand or to a change in institutional arrangements. The optimal tax would be in conjunction with a standard reclamation policy and would overcome the deficiency but require extensive cost analysis as well as post-mining inspection of each site.