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Related to externalities: Positive externalities


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.


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.


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.


References in periodicals archive ?
9) Benhabib and Farmer (1994) prove that this representative-agent model with externalities is equivalent to a decentralized market economy with increasing returns at the firm level.
2009): "Cybersecurity: Stakeholder Incentives, Externalities, and Policy Options", Telecommunications Policy, 33(10/11), 706-719.
Automobile Externalities and Policies, Journal of Economic Literature, 45(2): 373-399.
Of the five general categories of market failures, three are potentially relevant to corporate governance: information failure, agency failure, and externalities (externalizing harm onto third parties).
By construction, all of our policies lead to the same reduction in greenhouse gas emissions; however, if there exist other negative externalities associated with biofuels, then focusing only on greenhouse gas reductions understates the economic inefficiencies of performance standards.
Aslanbeigui and Medema (1998) illustrate three possible solutions to the problem of externalities as outlined by Coase, if participants find it too costly to reallocate resources through contracts/markets.
Calculate the economic externalities of an investment, both positive and negative, and include measurable externality benefits in the cost-benefit analysis used in the initial decision to build; and
The adoption of binary code as the universal standard--as the alphabet for globalized communications--generates highly positive externalities often referred to in terms of network effects (Liebowitz and Margolis 2002).
1) At the core of this skepticism is the idea that because of systemic externalities, a free market is exposed to episodes of boom and bust.
innovation externalities, most industries do not face socially optimal
insurance (or other means to pay) create fiscal externalities for other