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Integrated cost management programmes consist of a number of distinct cost management techniques that reinforce each other, with the output of one technique creating the input for another. This chapter examines two different types of integrated cost management programmes. The first type is the internal integrated cost management programme at Olympus Optical Company, which consisted of five distinct internal cost management techniques that resulted in aggressive cost reduction pressures across the life cycle of the product. The second type is the external integrated cost management programmes at Komatsu, Isuzu, and Tokyo Motors, and their respective suppliers, Toyo Radiator (Komatsu), JKC (Isuzu), and Yokohama Corporation and Komatsu Iron Works (Tokyo Motors). These programmes consisted of three distinct cost management techniques that resulted in aggressive cost reduction pressures across the organizational boundaries between buyer and supplier.

Alcohol taxes and revenues vary widely in the EU, ranging from over 100 euros per capita in Scandinavian countries to less than 30 euros in Mediterranean countries. It is difficult to defend the high alcohol excises on ‘inverse-elasticity’ rounds (Ramsey rule). It is also unclear whether alcohol would be a complement or a substitute for leisure. To be sure, the taxation of alcohol sales helps to reduce the external costs generated by abusive consumers, but at the cost of reducing the consumer satisfaction of non-abusive consumers. The concerns that are sometimes raised about the regressivity of tobacco taxes do not apply with anything like the same force to alcohol taxes. In the US, a very large proportion of the net external cost associated with abusive alcohol consumption is accounted for by the valuation of alcohol-related traffic fatalities, whereas in UK studies, the largest items appear under the heading ‘social cost to industry’. The average external cost of alcohol consumption in the UK might be in the order of 17 per cent of the pre-tax price of alcohol. Narrowing differences in levels of alcohol taxation in EU member states would reduce the economic and fiscal costs associated with legal cross-border shopping.

Gambling has experienced rapid growth in recent decades, marked by the legalization of heretofore forbidden games and increasing rates of participation among households. This legalization is invariably accompanied by both regulation and taxation. Governments collect excise tax revenue from gross revenue (e.g. slot machines and casino gambling tables) or gross wager (e.g. lotteries). Overall, gambling products tend to be subject to quite high implicit or explicit rates approximating those on tobacco and alcohol. While the joint legalization and taxation probably conveys net welfare gains (net gamblers are better off), the legalization nevertheless imposes some external costs (compulsive gamblers, particularly of gaming machines, are worse off). The incidence of gambling taxes is usually regressive. The taxation of gambling is bound up with other policy issues relating to society’s attitude towards gambling. A middle ground is to accommodate the existing, unstimulated demand for gambling, without doing anything to stimulate that demand. Besides limiting the availability of gambling opportunities, this approach would be consistent with differentially higher tax rates.

External costs are pervasive, and have been of concern to society since the Middle Ages at least. Examples discussed are oceanic dead zones, overfishing and coral death, deforestation, antibiotic resistance, ozone depletion and acid rain. They result from a failure of the market as it currently operates to reflect external costs, a failure which can be readily overcome.

This chapter examines two categories of merit goods: goods whose commodification is in itself costly, and goods whose allocation through the prevailing distribution of wealth is highly undesirable to a significant number of people. Both types of merit goods differ from the generality of goods whose market allocations lead to more traditional sorts of external costs. The external costs caused by merit goods are mental sufferings that their allocation in the ordinary market imposes on other people. Before explaining commodification and commandification in more detail, this chapter considers the particular and special externalities associated with some goods and bads that seem to differentiate them from most goods and bads. It also discusses these externalities and these goods and bads within the context of economic theory. Finally, it explores tort law as an example of the attempted optimization and allocation—through modified command and markets—of merit goods that we do not wish to deal with through pure command or pure markets.

The natural world matters greatly to economic performance: the economy and the natural world are strongly interdependent, and improving the natural environment improves economic performance directly. But nonetheless economic activity is seriously damaging the environment. There are four reasons for this, all connected with clearly identifiable shortcomings of our economic system – failure to charge for external costs, failure to manage common property, failure to recognize and value natural capital, and failure to properly evaluate economic performance. Subsequent chapters develop these points.

This chapter identifies the environmental conditions favorable to voluntary exchange and those susceptible to external cost imposition, and the consequences of each for efficiency. When someone takes a legally recognized right from another without consent or compensation, an external cost is imposed. Externality is theft. There’s no externality until the law gives the cost bearer a right to be free of the costs imposed, so imposing an external cost means stealing this right, or entitlement, which always creates an injustice for the law that requires a liability proceeding to force the cost imposer to compensate the owner and complete the unfinished involuntary exchange begun by the theft. But externality isn’t always inefficient, and forcing thieves to pay a compensatory liability price won’t necessarily deter the thefts. Absolute deterrence of externality would deter these thefts whether they’re efficient or not, but tort and criminal liability seek only full compensation, not absolute deterrence.

This chapter describes the negative obesity externality associated with health insurance. The measurement of the obesity externality involves more than just measuring the subsidy to obese individuals induced by health insurance. The welfare loss due to the obesity externality depends upon both the size of the subsidy and upon the extent to which body weight decisions are distorted on the margin by the subsidy. The main mechanism by which obesity imposes external costs is stated to be through pooled health insurance. It discusses the importance of health insurance elasticity of body weight to the welfare economics of obesity and measures separate elasticities for the extensive margin (people gaining or losing insurance altogether) and the intensive margin (insurance becoming more generous). It further distinguishes different elasticities for public and private insurance coverage for estimates of the elasticity along the extensive margin.