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MGT610 Assignment No 01 Fall 2019 Solution & Discussion Due Date: 23-01-2020

The substance of the internalization of environmental costs is to resolve the external effect in the
economic of environment as resources having public goods characteristics. Externality refers to
the effect of the producers’ production behavior (or consumers’ consuming behavior) on the
welfare of a third party. It is an additional effect of non-market that an economic force does on
another, including the positive externality and negative externality. If this resource is scarce,
meaning that different subjects are incompatible with each other, then the negative externality
will inevitably occur. The environment is just a typical kind of scarce resource, and certain
economic entities in the use of the environment will affect the use of other economic entities on
the environment. Therefore, environment pollution in the use of environment has the typical
negative externality. So the internalization of environmental costs helps to improve the level of
welfare effect of the whole society. Thus the internalization of environmental external costs is
necessary.
Discuss the ways which are helpful to internalize the environmental costs to reduce
environmental pollution.
Reference:
Long, G., Lei, W., Sijie, C., & Bo, W. (2012). Research on Internalization of environmental
costs of Economics. IERI Procedia, 2, 460-466.

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MGT610 Business Ethics Assignment 1 Solution & Discussion Fall 2019


Solution Idea:

Measurement of environmental pollution loss costs of the industry:

The loss cost of environmental pollution means that pollutant emissions from industry damage or pollute the environment, which leads to degradation of some of the environmental function, and it brings harm to the society and other stakeholders, resulting in economic losses. It mainly includes the economics losses caused by air pollution, sold waste pollution and noise pollution which do harm to the society and other stakeholders. This part is completely ignored in the traditional accounting. The measurement of environmental pollution loss costs of the industry is a process from description of the environmental damage situation to the monetary expression of the environmental losses.

Industry losses of air pollution include human health losses, losses of lower the quality of atmospheric environment, agricultural losses and losses of construction materials corrosion. Calculation of the loss of human health uses the modified human capital approach, which means that losses of human health include the loss of human health caused by air pollution and the loss of mortality change caused by air pollution. We can use the shadow price to account for losses of lower the quality of atmospheric environment, we can select the minimum of the foreign shadow price as the unit price for researching the decreasing of quality of atmospheric environment.

Industry loss from water pollution include the losses of human health, agricultural losses, water pollution and industrial economic losses of the other industries caused by water pollution. The losses of human health still use the modified human capital approach, including the increase of incidence of the disease resulting in medical costs and days lost.

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