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 ?
58) In other words, pollution is a negative externality because the full cost of the pollution associated with the factory's output is not included in the price of the goods it produces.
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.
For purposes of simplification, I consider only two categories of possible solutions to the negative externality caused by increased GHG emissions: a private-market, Coasian solution and public interventions through price-based or quantity-based regulation.
Criticisms of the viability of bargaining solutions within a Coasean framework, especially in addressing negative externality problems such as pollution, have been numerous.
To provide one example, traffic congestion is a negative externality in which one person's decision to drive harms others.
In other words, the study also suggests that where formal institutions are weak, activities having negative externality could be curtailed through informal institutions such as social norms and peer effect.
Any contract that adversely affects children could be characterized as inflicting a negative externality.
Plaintiffs who incurred a harm resulting from a negative externality have a built-in incentive to overstate their harm in order to recover a greater amount.
the activity that produces the negative externality is the
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.