externalities


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Related to externalities: Positive externalities

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.

externalities

factors which may result in a benefit or cost to a firm or society which originate, in part, from outside the firm or as an adjunct to productive activity. A firm which does not itself invest in training its labour force, for example, may nonetheless benefit from being able to attract employees who have been trained by other firms or by the government. POLLUTION is an example of an external cost imposed on society: a chemical company which pollutes the air or contaminates river water incurs only the immediate costs of producing its products, while society suffers the extra costs of cleaning up the atmosphere and river.

externalities

factors that are not included in GROSS NATIONAL PRODUCT but have an effect on human welfare. POLLUTION is a prime example of an external cost imposed on society: national output may only be maintained by allowing a certain degree of pollution, which detracts from the quality of life. A firm will include the PRIVATE COSTS of materials, labour and capital used in producing goods and services but will not count the SOCIAL COSTS of any pollution involved. ENVIRONMENTAL TAX can be used to counter pollution externalities by ensuring that customers pay prices for products that fully reflect the environmental costs involved in their production and consumption. On the other hand, positive externalities, such as the social benefits conferred by firms in training workers who become available for employment elsewhere, are again not counted in national output.

See MARKET FAILURE, ROAD CONGESTION, WELFARE ECONOMICS, COST-BENEFIT ANALYSIS.

References in periodicals archive ?
The negotiations forged a new method for dealing with externalities showing how Coasean solutions could be facilitated and used in wide-reaching economic conflicts.
5) The second is suggestive of the notion that this result was considered, by some at least, to offer an alternative--and perhaps a superior one--to traditional Pigovian tax/subsidy schemes for dealing with externalities.
When managing crop disease, it is important to consider any externalities that may plague the available control options.
The issue of pecuniary externalities and other types of economic activities that have an aggregate effect on the real estate market--defined here as "market externalities"--may even be seen as going back to the days of establishing the institution of zoning in the United States.
7) The introduction of consumption externalities lowers the threshold share of non-Ricardian households--that is, the minimum degree of LAMP--necessary for the IADL to appear.
Coal companies have a responsibility to internalize accounting of negative externalities.
The above findings motivates Fitriani and Harris (2012) to simulate the effect of two policies which intended to reduce the impacts of the social and the green externalities, namely agricultural zoning and maximum lot size zoning respectively, on the urban spatial pattern.
Automobile Externalities and Policies, Journal of Economic Literature, 45(2): 373-399.
Given the critical role externalities play in justifying both development of property rights and intervention in markets and individual liberties, understanding mirrored externalities and the consequences of our framing of them is vital.
One justification for these development efforts is the notion that these retailers produce positive externalities for the existing local businesses and promote the arrival of new businesses, increasing municipal tax collection and employment.
The question of who pays for externalities therefore seems to remain unanswered for now.