Negative Externality

A Negative Externality is an externality that imposes a negative effect/external cost on a third party.

• AKA: External Diseconomy.
• Context:
  • It can (often) be a negative effect on a Shared Resource (such as a tragedy of the commons).
• Example(s):
  • Water Pollution.
  • Air Pollution, such as a second-hand smoke.
  • Noise Pollution.
  • Anthropogenic Climate Change.
  • Overfishing.
  • …
• Counter-Example(s):
  • a Positive Externality.
• See: Market Failure, Systemic Risk, Moral Hazard, Banking Regulation, Free Market Fundamentalism.

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References

2014

• (Wikipedia, 2014) ⇒ http://en.wikipedia.org/wiki/externality#Negative Retrieved:2014-8-3.
  • A negative externality (also called "external cost" or "external diseconomy") is an action of a product on consumers that imposes a negative effect on a third party; it is "external cost".

     Barry Commoner commented on the costs of externalities:

    • Clearly, we have compiled a record of serious failures in recent technological encounters with the environment. In each case, the new technology was brought into use before the ultimate hazards were known. We have been quick to reap the benefits and slow to comprehend the costs (Quoted from ).
  • Many negative externalities are related to the environmental consequences of production and use. The article on environmental economics also addresses externalities and how they may be addressed in the context of environmental issues.
    • Air pollution from burning fossil fuels causes damages to crops, (historic) buildings and public health. The most extensive and integrated effort to quantify and monetise these impacts was in the European ExternE project series.
    • Anthropogenic climate change is attributed to greenhouse gas emissions from burning oil, gas, and coal. The Stern Review on the Economics Of Climate Change says "Climate change presents a unique challenge for economics: it is the greatest example of market failure we have ever seen."
    • Water pollution by industries that adds effluent, which harms plants, animals, and humans. * Noise pollution which may be mentally and psychologically disruptive.
    • Systemic risk describes the risks to the overall economy arising from the risks that the banking system takes. A condition of moral hazard can occur in the absence of well-designed banking regulation, or in the presence of badly designed regulation.
    • Industrial farm animal production, on the rise in the 20th century, resulted in farms that were easier to run, with fewer and often less-skilled employees, and a greater output of uniform animal products. However, the externalities with these farms include "contributing to the increase in the pool of antibiotic-resistant bacteria because of the overuse of antibiotics; air quality problems; the contamination of rivers, streams, and coastal waters with concentrated animal waste; animal welfare problems, mainly as a result of the extremely close quarters in which the animals are housed."
    • The harvesting by one fishing company in the ocean depletes the stock of available fish for the other companies and overfishing may be the result. The stock fish is an example of a common property resource, and that, in the absence of appropriate environmental governance, is vulnerable to the Tragedy of the commons.
    • When car owners use roads, they impose congestion costs and higher accident risks on all other users
    • Consumption by one consumer causes prices to rise and therefore makes other consumers worse off, perhaps by reducing their consumption. These effects are sometimes called “pecuniary externalities” and are distinguished from "real externalities" or "technological externalities". Pecuniary externalities appear to be externalities, but occur within the market mechanism and are not considered to be a source of market failure or inefficiency, although they may still result in substantial harm to others.
    • Shared costs of declining health and vitality caused by smoking and/or alcohol abuse. Here, the "cost" is that of providing minimum social welfare. Economists more frequently attribute this problem to the category of moral hazards, the prospect that parties insulated from risk may behave differently from the way they would if they were fully exposed to the risk. For example, individuals with insurance against automobile theft may be less vigilant about locking their cars, because the negative consequences of automobile theft are (partially) borne by the insurance company.
    • The cost of storing nuclear waste from nuclear plants for more than 1,000 years (over 100,000 for some types of nuclear waste) is included in the cost of the electricity the plant produces, in the form of a fee paid to the government and held in the nuclear waste superfund. Conversely, the costs of managing the long term risks of disposal of chemicals, which may remain permanently hazardous, is not commonly internalized in prices. The USEPA regulates chemicals for periods ranging from 100 years to a maximum of 10,000 years, without respect to potential long-term hazard.
    • Antibiotic use contributes to antibiotic resistance, reducing the future effectiveness of antibiotics. Individuals do not consider this efficacy cost when making usage decisions, leading to socially sub-optimal antibiotic consumption. Government policies proposed to preserve future antibiotic effectiveness include educational campaigns, regulation, Pigouvian taxes, and patents.
    • In relation to 'environmental victims', externalities can often represent 'loss-costs', which reflects Kantian ideas of a distinction between 'value' that can be replaced, and 'dignity' which cannot.

1962

• (Carson, 1962) ⇒ Rachel Carson. (1962). “Silent Spring." Houghton Mifflin Harcourt. ISBN:B004A1FPZU

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