Neighborhood Effects: Do the benefits exceed those risks and is Friedman right when he argues that neighborhood effects sometimes create business opportunities?

Neighborhood Effects

As informed by the following definition of neighborhood effects and video links (located below),  provide an argument as to whether (and, if so, to what extent) the state (meaning, governments) may justifiably enact laws seeking to prevent and/or regulate any impacts of anthropogenic climate change. Are there any risks associated with such government actions? Do the benefits exceed those risks and is Friedman right when he argues that neighborhood effects sometimes create business opportunities? How so? Can you think of any opportunities?

Neighborhood Effects Definition:

Sometimes situations arise where the market cannot limit the effects of a use of private property to those willing to accept its burdens. Friedman termed this situation the problem of “neighborhood effects,” which he claimed arose “when actions of individuals have effects on other individuals for which it is not feasible to charge or recompense them.”

Environmental issues are paradigmatic here, as Friedman noted:

The pollution of a stream [is an] . . . obvious example. The man who pollutes a stream is in effect forcing others to exchange good water for bad. These others might be willing to make the exchange at a price. But it is not feasible for them, acting individually, to avoid the exchange or to enforce appropriate compensation.

Similarly, Hayek reasoned that it is,

Fully compatible with competition, [t]o prohibit the use of certain poisonous substances or to require special precautions in their use . . . or to require certain sanitary arrangements. . .

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The price system becomes . . . ineffective when the damage caused to others by certain uses of property cannot be effectively charged to the owner of that property. . . Nor can certain harmful effects of deforestation, of some methods of farming, or of the smoke and noise of factories be confined to the owner of the property in question or to those who are willing to submit to the damage for an agreed compensation.

Accordingly, classical liberalism (providing for the maximization of human freedom) accepts that where competition produces “effects on other individuals for which it is not feasible to charge or recompense them” or there is “a divergence between the items which enter into private calculation and those which affect social welfare . . . some method other than competition may have to be found to supply the services in question.”

Videos:

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