We analyse a number of different externalities to identify conceptual
challenges for the practical implementation of their internalisation. Three
issues were identified: i) The balance between compensation and
technology change and the respective effects on the nominal and real GDP;
ii) The relevance and efficiency of different instruments for internalisation
and compensation; and iii) Implementing internalisation over large
geographical and temporal distances. We find taxation to be a more relevant
and efficient tool for internalisation than insurance and litigation. With
increasing geographical and especially temporal distance between the
benefitting actor and the victim of the external cost, the involvement of a
non-governmental intermediate actor becomes increasingly necessary to
provide the short-term capital required to ensure a successful
implementation.

external costs; monetarisation; temporal distance; compensation; temporal benefit sharing