[squeek12]

I understand the concept of externality. I just meant that in the case of the neighbor's dog, the death of his dog should be considered part of the market process, and not external to it. The cost of potential lawsuits should be considered by companies and used in the pricing of their products. If a company was killing too many dogs, their prices would cease to be competitive, and they'd be replaced by more dog-friendly companies. This, IMO, is part of the market process, and therefore, not an externality.

Externality suggests an occurance that cannot be handled by the market. I think pollution can be internalized by the market as long as the courts enforce private property rights. Your first post (IIRC) suggested that the government take action to compensate for the costs of negative externalities. All I wanted to argue is that I believe that the market can, in fact, account for the negative effects on society made by the production of goods or services.

Of course the government would play a role in settling lawsuits, but I don't consider this a direct participation in the market.

FWIW, I'm no economics expert by any stretch of the imagination, but I tend to subscribe to the Austrian school more so that the Classicists.