Not necessarily — but it depends on how full cost internalization is implemented and on the market structure, according to unctad.org and encyclopedia.uia.org.

Full cost internalization means that all environmental and social costs associated with resource use — including pollution, depletion, and habitat loss — are reflected in the price of goods and services. In theory, this should eliminate inefficiencies caused by externalities because prices would signal the true scarcity and impact of resources, leading to optimal allocation.

However, in practice, several factors can still produce resource use inefficiencies even under full cost internalization:

1. Imperfect Valuation

• Challenge: Many environmental costs are hard to quantify (e.g., biodiversity loss, intergenerational impacts).
• Effect: If valuations are inaccurate or incomplete, prices may still mislead resource allocation.

2. Market Power & Distortions

• Challenge: Even with correct pricing, monopolies, subsidies, or trade barriers can distort consumption and production choices.
• Effect: Resources may still be over- or under-used relative to the social optimum.

3. Intertemporal Inefficiencies

• Challenge: Internalization often focuses on present costs, but optimal use also requires balancing current and future needs.
• Effect: Over-extraction can still occur if discount rates are too high or future damages are undervalued.

4. Transaction & Implementation Costs

• Challenge: Monitoring, enforcement, and compliance costs can be high.
• Effect: If these costs outweigh the benefits of internalization, the system may be less efficient overall.

5. Equity vs. Efficiency Trade-offs

• Challenge: Policies designed to protect vulnerable groups (e.g., subsidies for essentials) may reintroduce distortions.
• Effect: Social goals may override pure allocative efficiency.

In a perfectly competitive market with perfect information, full cost internalization should eliminate inefficiencies and result in optimal resource allocation. However, in the real world, valuation challenges, political constraints, and market imperfections mean that some inefficiencies are likely to persist — albeit smaller and more transparent than they would be without internalization.

Thank you for taking the time to comment Jorge. Your comment reads like a chatGPT answer as AI usually can not address specific questions of short yes or not and why answers.

I asked the question in general terms (to cover all possible markets) and clearly bound by "under full cost internalization", and indicated if you think yes, why and if you think no, why, and the answer is NO for the reasons you stated under perfect market thinking. But if the markets still remain distorted by any of the reasons you listed yes you should expect resource use inneficiencies. But I think that if the net benefits of even imperfect cost internalization in terms of positive critical problem solving impact as compared to the full cost of the negative impacts of full cost externalizaion on them may make it worth it, but perhaps for the shift from full cost externalization to full cost internalization to actually take place we need a global system collapse or a strong tendency towards system collapse, and the global warming issue may help us to get there at one point.

I appreciate your comment Jorge!

Respectfully yours

Lucio

Dear Lucio, I have attempted to outline the reasons that should be considered when answering your question, assuming a perfectly competitive market, without taking a definitive stance in my response. I tried to outline the reasons that should be considered when answering your question, in order to encourage input from other experts and learn their opinions on the matter. However, if markets remain distorted for any of the reasons I mentioned, then we should indeed expect inefficiencies in resource allocation. I agree with you that if the net benefits of cost internalization, even if imperfect, in terms of a positive impact on solving critical problems, outweigh the negative costs of externalization, then adopting a positive approach might be worthwhile.

In my response, I used AI, as well as the two references provided, to foster discussion on the issue at hand.

Dear Jorge, appreciate your comments. AI is not good at specific yes or no questions and why, it will give you the same answer if you ask "under cost internalization ", a general wuestion and "UNDER FULL COST INTERNALIZATION"' a specific question. Providing a general answer to an specific question is not the way to go, general answers to general questions and specific answers to specific questions, one of my professors used to remind me.

I do not used AI in any of my thinking

Respectfully yours

Lucio

In theory full internalization (prices reflecting all environmental and social costs) should reduce inefficiencies by aligning private incentives with social optima, but in practice frictional issues—imperfect information, bounded rationality, transaction costs, fiscal constraints, incomplete markets, and political capture—can leave residual inefficiencies even when costs are priced.

The question says speficifically UNDER FULL COST EXTERNALIZATION, AI programs are not good at answering speficif questions unless you redirect them with proper knolwedge....THE ANSWER IS NO as full cost internalization IMPLIES perfect market thinking

If you use AI work to answer outside the box questions you probably will get it wrong as AI has the same paradigm shift knowledge gap that the mainsteam thought that builds them has.....