Externality

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Related to Negative externality: Positive externality

Externality

The cost or benefits of a transaction to parties who do not directly participate in it. Externality can be either positive or negative. For example, a merger can lead to higher share prices and bonuses for employees, benefiting shareholders and employees at the two companies merging, This can create wealth and positively impact a community. On the other hand, the merger can drive a competitor out of business, which results in layoffs and reduced wealth, which can hurt a community. Externality is also called spillover or the neighborhood effect. See also: External benefit, External cost.
References in periodicals archive ?
Focusing on the rancher, for example, we could characterize a rancher who chooses to allow his cattle to roam as imposing a negative externality on the farmer in the form of destroyed crops.
The paternalistic argument, of course, is that the present self imposes a negative externality on the future self by discounting too heavily the long-term consequences of consuming "calorie-dense" fast food or sugary beverages.
One implication of this result is that policymakers should recognize the power of voluntary negotiations to overcome negative externality problems, even in the absence of government intervention.
Similarly, projects in which the private returns are high, but social returns are negative, are best addressed with private investment, but with government taxation of the negative externality to equate public and private returns.
ante distortive effects than in the negative externality context.
For example, if there is a negative externality from segregation, it may be optimal to have a harsher penalty for a hate crime committed against a black family living in an otherwise all-white neighborhood than for an otherwise-identical hate crime committed against a black family living in a black neighborhood, in order to provide better incentives for integrating neighborhoods.
Is this not a case of negative externality in production in all sectors of the economy, which causes market failure?
A negative externality of a health education program to reduce smoking via increasing taxation may be that, although overall consumption may decline, the remaining smokers may smoke more of the cigarette than before and thus increase their risk due to increased exposure to carcinogens at the lower end of the cigarette.
They tend to overexploit consumers' attention (4), and thus produce a negative externality.
In other words, there is an unpriced negative externality to the actions of market participants.
Negative Externality of Carbon Emissions Is Difficult to Valuate