Existential Externality Theory

AbstractThis paper introduces the concept of existential externalities, defined as effects that threaten thefundamental capacity of individuals and ecosystems to sustain their vital functions independently ofmarket processes. Unlike conventional externalities, existential externalities create a sharp discontinuityin individual utility at critical survival thresholds. We formally demonstrate that, as existential goodsapproach minimal thresholds necessary for survival, their economic valuation tends towards infinity, un-dermining traditional marginalist assumptions. Consequently, conventional market mechanisms fail toallocate these existential goods efficiently or ethically. This theoretical insight justifies adopting non-market mechanisms and strict regulatory standards to safeguard essential goods and ecological stability.The analysis challenges the subjective value theory, advocating a dual framework that integrates bothsubjective preferences and objective survival constraints. Our findings offer a clearer path toward eco-nomic policies aligned with contemporary challenges of sustainability and human dignity. They alsosuggest the development of innovative carbon pricing instruments specifically designed to internalizeexistential externalities more effectively, such as Carbon Contingent Common Stocks (CCCS), whichlink shareholder remuneration to firms’ climate performance by conditioning dividend payouts on theachievement of emissions targets