Buchanan on externalities: An exercise in applied subjectivism

Buchanan's work on the methodology of economics includes many references to externalities. Buchanan has emphasized that a subjective conception of economics, and a focus put on exchange rather than on choice, has implications on an analysis of externalities. In this paper, we analyze the reverse claim: Buchanan's views on externalities are a perfect illustration of his plea for subjectivism in economics, and the need to focus on economics-as-a-science-of exchange. We show that Buchanan's treatment of externalities was a “laboratory” for his claims and arguments about subjectivism.

► Buchanan's subjectivism is not restricted to costs. ► Buchanan's analysis of externalities is fundamentally subjectivist. ► Buchanan's subjectivism was implicit in his work on externalities before his work became explicitly subjectivist. ► Buchanan considers that economics-as-a-science-of-choice is objectivist. ► Buchanan argues that subjectivism is necessary because economics is a-science-of-exchange. ► Buchanan's work on externalities was a laboratory for his views on subjectivism.