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 ?
That education does create some positive externalities, which are continuously being used to justify the $960 billion paid in taxes.
Externalities exist because some people in a low-transaction-cost group bargain for their mutual benefit and as a by-product generate costs or benefits external to the market that affect others outside the low-transaction-cost group.
In fact, externalities often apply to our most important societal issuesclean air, clean water, and most anything to do with environmental impacts.
Violence is also a part of negative externalities which is also the main cause for the increase seen in the growth of population and also poverty.
Calculating any positive externalities that could be generated by an enterprise producing a perfectly competitive, easily traded, commodity is a fool's errand.
We now show that the tax cooperation may even yield a lower welfare level than tax competition when one country's public infrastructure investment generates externalities for the other host country.
Ideally a transboundary river treaty should be geared to share costs (negative externalities) and benefits (positive externalities) in harnessing them.
Accordingly, this article concludes that it would be reasonable for federal and state governments to adjust mineral royalty rates to account for negative externalities that are not otherwise addressed by regulation, or to otherwise promote public welfare.
When individuals or firms make their decisions, they generally do not account for any externalities they may impose on others.
A prominent example of adapting the economic analysis of network externalities to IT investment decisions is presented by Au and Kauffman (2001) who model technology adoption for the electronic bill presentment and payment (EBPP) industry.
New Delhi [India], August 31 ( ANI ): Amid ongoing debates regarding the pros and cons of loan waivers for farmers and the subsequent impact it would have on the economy, Reserve Bank of India (RBI) Governor Urjit Patel opined that there are externalities that spill over beyond the farming sector.