Macmillan Learning EconEd Instructor Innovation Award Contest

by Madhavi Venkatesan

Externalities are increasingly part of the news but the connection between the types of externalities discussed, such as greenhouse gas emissions and water contamination, and the legitimacy given to economic behaviors of profit maximization on the part of the firm and insatiability specific to the customer, are not always understood by the general public. This means that instead of treating the underlying root cause of issues resulting from externalities, economic agents settle, period after period, for treating the symptoms. Over time arguably this has led to frustration and hopelessness as individuals wishing to contribute to limiting the human footprint attributable to negative externalities are unable to determine where to start.

In my Principles of Microeconomics class, I include a life cycle assessment project for the term. This assists students in learning the theory of the firm, theory of the consumer, externalities, and the significance of value-oriented purchasing and investing with respect to the utility function.

At the start of the term, students are paired and search campus for a littered item that was produced by a public company. The use of litter starts the inclusion of environmental externalities related to consumption and inappropriate disposal. The limit to a public company allows for use of SEC Form 10-K filings to understand firm strategy, profit, and costs related to the product. The students then research using public sources the production of the packaging, its consumer impact, and disposal impact and similarly with respect to the consumed product, the production, consumption, and disposal impact are addressed. In all cases there is evidence of externalized costs and the incentive for the same given both profit motivations and demand for lower prices as consumers become more elastic. What the students also learn is how limited information is with respect to the product they are assessing. This assignment culminates in a presentation to the class that allows students to learn about more than their particular assignment.

The assignment, as described in brief, has assisted students, who I find are increasingly interested in sustainability, in connecting the role of the economic framework with observable externalities and has also empowered them. The latter stems from an understanding that incentives are aligned to outcomes. So, increasing consumer transparency related to product supply chains and changing corporate officer compensation to align with environmental impact reduction, can be meaningful change that they can help create and benefit from.

I judge the success of this assignment from student comments and share a few below.