Talk:Externality/Archive 1

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Archive 1 Archive 2

Uses of the term outside economics

There is a completely different usage of "externality" in theology and (primarily French) anthropology. I can't provide a definition myself (I had been hoping to find one here), but I thought it needed to be mentioned.--WadeMcR 17:01, 12 April 2006 (UTC)

References?

I don't know anything about economics really, and happened here via "Random article". The article is basically well-written (though the examples seem a bit one-sided and biased, to me; others are a bit hard to understand), but there are no references at all here. Is this a normal term associated with economics? If so, shouldn't there at least be some references to it's coinage or inception and some applications of it in economic theory? It reads now as very POV to me. Anyway, I've no vested interest in this article, but thought someone might find it useful what an unlearned source takes away from this. --Davetron5000 20:32, 10 August 2006 (UTC)

Since no one responded, I put in the {{source}} template to indicate a lack of sources or references --Davetron5000 16:51, 25 August 2006 (UTC)
The data seems to come from Allexperts, http://experts.about.com/e/e/ex/Externality.htm. --jfolin 13:50, 17 October 2006 (CET)

WELL TO UNDERSTAND the concept OF externalities book written by N.GREGORY MANKIW, GIVES AN EXELENT PREVIEW OVER THE SUBJECT.. WELL IT DOES HELPED WITH SOME GRAPHS, AND OVER ALL THE ARTICLE IS WELL EXPLAINED.

Vandalism and crime are not externalities

Not every public nuisance is an externality in the economic sense. I have removed mistreatment of animals, vandalism, and crime from the list of negative externalities. These are not examples of collateral consequences to third parties of an economic transaction or activity. This section claims to be dedicated to the negative consequences of the actions of consumers on the rest of society, so let's stick to the subject here. I've added a little more about the negative consequences of the consumption of tobacco and alcohol. The last paragraph of this section is so garbled that I don't know what it is trying to say. Maybe someone else would dare to try to clean it up? Piperh 18:57, 3 June 2007 (UTC)

3rd paragraph of intro

I deleted (you're right, should have explained) "This should be contrasted with purely private economic agreements that do not affect third parties, where the assumption may be made that, if each party is acting in his or her own interests (as defined by utility) and there are no other major market failures, the agreement or exchange improves overall utility for society. Put more simply, if an economic transfer between two parties enhances the utility of both without negatively affecting the utility of any third party, the well being (collective utility) of society is improved; if the utility of others is harmed, it is no longer unambiguously clear that society's collective utility has increased, and may have decreased." Other than weak writing and lack of citations (neither of which is a very good reason to delete, I think), I want to get rid of this because it's so strictly theoretical that it's useless. Obviously a transaction that benefits the private parties with no externalities would only be beneficial, that's defined in the description of the transaction. I would ask what could possibly fit under this classical economics scenario though. Everything has externalities, even products with clear overall benefit to society. Heart valves, for example, are great, I'm thankful for them. They do harm research pigs though, and cost a little air and water pollution to be made, etc. Even though those externalities are vastly outweighed by benefits, they still exist, even if we don't care much about researh pigs as compared to grandmas. Envirocorrector 09:36, 9 July 2007 (UTC)

Since this is a discussion of externalities, I think it worthwhile to retain a description of the underlying assumption that transactions entered into willingly can be and are assumed to be beneficial; this is a point that is often lost. (As opposed to the base assumption that "everything has externalities, therefore those externalities should be dealt with before such transactions are allowed."
As to "everything has externalities", that's just a generalisation; one could easily take the opposite point of view and say most transactions have no externalities or only trivial ones. The point is the base assumption for economic analysis is generally that externalities must be identifiable, non-trivial and attributable to the transaction/industry/activity.
Don't like the writing? Edit.--Gregalton 11:44, 9 July 2007 (UTC)
Fair enough. But the very begining of the following section states "Economists see voluntary exchange as mutually beneficial to both parties in an exchange." If anything, the point becomes clearer as we cut back some of the clutter. Envirocorrector 12:41, 9 July 2007 (UTC)
I don't like the writing, and I'm editing. Thanks for tip, hadn't thought of editing on WP! Be bold and all that. I believe the intro as I've left it is clearer, shorter, better. The old one had about 4 paraphrasing of the same definition. Envirocorrector 13:28, 9 July 2007 (UTC)
Hey Gregalton, I like what you have done. There's no disagreeing with what you say, when there are only minor externalities, or none at all, the net result is a gain. What I didn't like before was that it was set up as a contrast, rather than a question of the relative weight of costs and benefits to both economic actors and third parties. Envirocorrector 14:05, 9 July 2007 (UTC)
Fair enough, the previous para was rather wordy - and thanks. The thing that I wanted to underline is that the underlying assumption is strong and fairly robust, and often gets forgotten - that as long as both participants are willing (in absence of x, y and z, including externalities), the result is net positive.
A quibble with what is there now that I don't know how to reformulate well: the "loss" in case of positive externalities is not a loss, but less gain than is theoretically possible. Perhaps this isn't a subject for the lede, but an interesting distinction.--Gregalton 14:32, 9 July 2007 (UTC)

Positive and Negative externalities

I have gotten rid of the section "types of externalities," which contained only the subheadings negative and positive externalities, and moved them (without edits) into the sebheadings "negative externalities" and "positive externalities." Those sections are now long, hard to ready, lack any real flow, and probably repeat themselves. Any work is welcome of course - I would suggest that we start by simply deleting examples that may be a stretch. For example, graffiti may not really be an externality, and if it is, it's certainly not the kind of textbook example that clarifies the subject of the article. I'll do some myself later this week, but wanted to ask for help. Envirocorrector 22:06, 9 July 2007 (UTC)

Diagram does not explain externality

Diagram explaining externality at http://en.wikipedia.org/wiki/Image:Externality.svg is ambiguous. What do the arrows denote? Either use normative diagrams such as UML or a key to explain your diagramming elements. Note also two spelling errors suggesting a lack of review. I recommend pulling this diagram, I think we can do much better than this. Toddboyle 17:51, 17 July 2007 (UTC)ToddBoyle

relevance to present day

how relevant to the present day? major issues and approaches to address them. Jackzhp 19:42, 27 July 2007 (UTC)

Relevence of Coase Therom to understanding policy implications of Externalaties

Being new to this topic I am finding it hard to see how Coase can be helpful in understanding the policy implications of externalities. Help please!! (Jacolone 11:39, 24 September 2007 (UTC))

classic references

who is the first person that discovered this phenomenon, and in which paper or book? Jackzhp 19:42, 27 July 2007 (UTC)

Arthur Pigou. OptimistBen 05:07, 16 October 2007 (UTC)

Types of Externalities

More examples needed in negative part, for car use one of the largest sections in economic externalities. ie traffic congestion, pavement damage, traffic accidents... the list goes on. —Preceding unsigned comment added by 193.1.172.163 (talk) 22:27, 7 December 2007 (UTC)

I agree totally, there should be a new section 'Examples'. Climate change is the most obvious one that comes to mind but there are many others. The links to other topics provided from such a section could be quite useful for readers. Woood (talk) 13:48, 30 January 2008 (UTC)
We have to be careful about examples. Examples should be limited in number, clearly illustrate the concept, and be well-referenced – otherwise we risk creating an example farm. LK (talk) 09:14, 4 January 2009 (UTC)

Positional externality-- jewellery example

I'm unhappy with this for two reasons.

1. Having gone to the effort of writing "Person A" and "Person B", and "spouse", we have "Person A loves his spouse". While I appreciate English singule possessives are rather tricky to make non-sexist, and "his" here is being used in a non-sexist sense, it still seems ugly to me. I would suggest either "their spouse" (ugly I know) or better

Husband A loves Wife A more than Husband B loves wife B, A must...

2. There is an ambiguity that Person B could be loving Husband A's spouse, not his own (if he has one). (i.e. "his" does not disambiguate.) The rephrasing above also cures this.

SimonTrew (talk) 08:34, 10 February 2009 (UTC)

Non-market solutions?

What about solutions to externalities that do not involve markets, such as participatory economics? Do they fall into one of the four categories that are listed in the article, or do they need to be listed separately? -Pgan002 (talk) 08:48, 11 March 2009 (UTC)

Hmmm good point. I was tempted to say oh everything is a market, even if it pretends it isn't. There is a truth in that (I think) but since the philosophy, at least as a philosophy, is specifically anti-market, it is hard to fit in, I agree. (My own cynical view is, as always, in practice everyone would cheat. There would be a black market.) SimonTrew (talk) 09:00, 11 March 2009 (UTC). Externality example would be mondi that supplies rim papers discharges uncleaned water to a river without cleaning|purifying the water so that reduces the price of the papers and has a bad influences on the people that use the same water for drinkig, cooking and sometimes even fishing in that river.

Steel Mill Assumptions

The steel mill argument assumes that air pollution is a requirement for steel production. I has been, with our current system, but in a regime with personal property right assumptions that forbid such intrusions, containment technologies may have been developed in tandem with the steel technology. BillMcGonigle (talk) 02:54, 30 September 2009 (UTC)

Opening sentance doesn't make sense.

The opening sentance of this entry doesn't make sense. On the fourth reading I finally figured out what it was meant to be saying but it needs clarifying -

"In economics, an externality is a cost or benefit from an economic transaction that parties "external" to the transaction receive"

would read better if it said

"In economics, an externality is a cost or benefit from an economic transaction that is borne by those parties "external" to the transaction.

Zibba66 14:39, 21 February 2007 (UTC)

The opening sentence was a semantic challenge to me as well. I have boldly gone where no editor has gone before and rewritten it as: "In economics, an externality is a cost or benefit resulting from an economic transaction that is borne or received by parties not directly involved in the transaction." This would seem to me to be more readable and is hopefully a correct definition as well. Piperh 19:22, 3 June 2007 (UTC)

This definition is still somewhat incorrect, or at least misleading. It's actually a cost or benefit to parties external to the transaction, provided that cost or benefit isn't mediated by the price mechanism. For instance, if I start selling oranges, I may drive down the cost of oranges, which would impose a cost on other orange sellers and a benefit on orange buyers (even if they're not buying from me). But that's not an externality -- it's just normal market interactions. I'm not sure how to phrase this so that it's both clear & accurate. --Austinecon (talk) 18:28, 14 October 2009 (UTC)

pecuniary externalities

I removed "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". Many economists do not accept the concept of pecuniary externalities, attributing such problems to anti-competitive behavior, monopoly power, or other definitions of market failures." The second sentence is entirely correct -- pecuniary externalities aren't actual externalities (in fact, they are generally not any sort of market failure whatsoever). --Austinecon (talk) 18:37, 14 October 2009 (UTC)

I added a ref for pecuniary externalities. I wish it was a source specifically about them, rather than about network effects, but (as the authors point out) clarifying the distinction of pecuniary externalities isn't given much coverage these days, so this was the best discussion I found. It's worth including in the list, but with explanation. CRETOG8(t/c) 19:26, 14 October 2009 (UTC)

lack???

The article on externality seem to lack a part on externalities that can be viewed as services that are not paid for but still are important for the product or services that an organisation/company sells. Eg. pollinating insects is generally perceived as a free resource but the cost of pollination could for example be evaluated in terms of the cost of manual human pollination. Another example could be ability of marshlands and forests to purify water. If am not mistaken the city of New York pay upstream farmers to stop using the farmland close to the river and thus does not have to spend so much resources on water purfication as would otherwise be needed. BedrupsBaneman 12:26, 30 May 2005 (UTC)

It's generally not an externality if money is being exchanged. So the New York farmers have internalized the externality because they will forfit money if they use the farmland close the the river. Pollination services are often paid for goods as well. For example, almond farms pay for bee keepers to come by and pollinate their fields since almond honey is not edible to humans. I do agree that there are some services that have traditionally been externalities. For example, at the start of the industrial revolution, dumping coal smoke into the air was free to the producer, but had a rather incredible health cost to the people who were breathing it. Jrincayc 14:33, 30 May 2005 (UTC)

It does not imply that all pollination is paid for, and thus remains an externality. But as you noted it can be prized and thus we have a prize tag on the ecosystem services provided by the bees. Btw ecosystem services is the word I was lacking in the comment above. Sometimes the term environmental or ecological externality is given to externalities like pollution etc that is already discussed in the article. An example similar to the New York state sitaution is the Panama Canal that is being filled with mud due to extensive deforesting and is thus a cost because of the need of dredging. See more on: http://economist.com/displaystory.cfm?story_id=3886849 As it turns out this may also be internalised in terms of the Panama state charging the freight companies so that the country can be reforestred. But this would imply that a third party (the freight companies) is paying for the restoration of the ecosystem services that was destroyed by the Panama Government (or who?). I mention this because putting a prize tag on an externality especially in terms of ecosystem services can be used to change processes or procedures towards a more well thought of dito or lets call them sustainable. This can be put into the article if I only can the the right words or place in the article. Bedrupsbaneman 13:57, 1 Jun 2005 (UTC)

The Coase theorm needs to be mentioned here. Basically under certain conditions externalities will solve themselves. -- Jrincayc

The graph and the comments of the case of positive externality need to be addedMilton 18:38, 14 Mar 2004 (UTC)

Suppose that two companies merge and, as a result, 1) there are a number of layoffs and 2) the remaining employees become more dissatisfied with their jobs. Clearly, the people making the merger decision have negatively impacted at least some people not involved in that decision: the employees. But would this count as a negative externality? If not, is there some other label economists would assign to it? --Ryguasu 19:57, 8 Apr 2004 (UTC)

It only counts as a negative externality if the negative impact does not (or only partially) affects the people making the decision. For your example, the layoffs probably would be a negative externality since the decision makers are probably not affected. The remaining employees' dissatisfaction might not be a externality, since this would presumably affect the decision makers in ways such as making hiring more difficult, increasing turnover and so on. Jrincayc 13:02, 9 Apr 2004 (UTC)
On second thought, perhaps neither situation merits speaking of a negative externality. As you point out, there is a market for jobs-at-that-company. A good neo-classical economist should say that increased employee dissatisfaction will influence prices in that market; in particular, provided elasticity conditions are right, increasing employee dissatisfaction will tend to increase wages. Similarly, wages will probably also increase when a company becomes less committed to job security. I'd love to hear if this analysis is leaving something out, though. --Ryguasu 17:17, 9 Apr 2004 (UTC)
Ryguasu, I have to disagree with your conclusions. The fact that the event will eventually influence market prices is non-sequitor and cannot be used to conclude that they are not externalities. To be an externality, some aspect of a transaction must be external to it. That is, it has not been internalized into the firm's production function and is not reflected in the market prices set for the transaction. What is at issue is whether the market mechanism is incorporating these effects into the current transaction price and output, not whether they will eventually have some influence on the market. mydogategodshat 07:20, 10 Apr 2004 (UTC)
The situation described sounds more like a shift in the labor demand curve, and a loss of surplus due to a change in the market isn't usually considered an externality. The reason this is confusing is because there are two transactions in the example - the one between the two companies, and the one between the company and its employees. If I shop at a bookstore regularly, but then move into an apartment with a friend who is willing to split the cost and share books, the owner of the bookstore could be said to be negatively affected by my decision to move in with my friend, even though he took no part in the decision. So it's a problem of defining it so that breaking off an agreement you are not obligated to keep does not count as negatively affecting someone.
168.16.132.59 (talk) 23:41, 3 May 2010 (UTC)

In the Coase theorem, the constraints of applicability mentioned in the article:

1 Property rights are well defined; 2 the number of people involved is small; and 3 bargaining costs are very small.


The pont 2 and 3 does not make justice to the full power of the Coase achievement. The point 2 is not necessary since firms and associations can be involved instead of individuals. Thus, the Coase philosophy can be applied very well to the case of a big company versus a citizen association.

In the point 3, bargaining cost is preferable to be small but it is not necessary. The optimum allocation of resources is achieved when bargaining costs are 0, but a high cost of transaction does not invalidates the philosophy of the Coase theorem. Moreover, in fact, judge decisions and state involvement are not ruled out by the Coase theorem. Firstly, Property rights have to be clearly defined, as the point 1 rightly stated; That must be done usually by the State previously to the dispute. Additionally, judges usually enforce agreements that have the virtual effect of lowering the transaction costs, and thus act as natural extensions of the market mechanisms.

The Coase achievement goes rather far than the unreal limits of the Coase Theorem. The global philosophy of the Coase work is: instead of having diffuse property rights and paying taxes to the State for externalities, it is better for a optimum allocation of resources and thus, the social welfare to have clear property rights and to pay directly to the affected by the externality.

I think there needs to be a much deeper discussion of "laid-off" costs and "internalized costs."

Ecar

Does a free market include property rights

This point is probably controversial, but I was a little surprised to see unequivocal language to the effect of "The result is that a free market is inefficient", and the point about pollution not being solved in competitive markets. My understanding is that free markets include the concept of property rights, which offers at least a potential solution to this, namely that if you pollute someone else's property in the form of land/air/water etc they can sue you for it. And this raises your private cost closer to the social cost so you end up paying the externality. I'm not implying this is a universally accepted idea or solution, but on the other hand neither is the idea that pollution isn't solved in a free market. I'll leave it up for discussion, but just thought I'd make the point. Thanks!

More info in the free market article discussing property rights: http://en.wikipedia.org/wiki/Free_market —Preceding unsigned comment added by 190.16.77.53 (talk) 18:52, 9 August 2009 (UTC)

The issue is not so much that the free market fails as that there is a missing market. If all property rights were well defined, there wouldn't be a problem with externalities. The problem is with defining who owns what. Air moves around a bit too much, so it's impractical to keep track of who it belongs to. The Coase_theorem explains how an efficient compromise can be reached without any intervention. If one person values being able to pollute someone else's property more than that person values having their property unpolluted, the first can make a deal with the second and pay them an amount between the two values. It doesn't work as well in all situations, though. Say I wanted to open a factory in a city, and the most efficient solution is for me to pay everyone in the city a small amount of money for permission to add a very small amount of pollution to the air they breathe. The cost of negotiating with each individual person might end up being so high that it's not worth it for me.
As for the idea of regulating pollution by allowing people affected by it to sue for damages, there's no reason it couldn't work. However, is there any reason that the people deciding who wins the lawsuit would understand the issues better than a government department? You'd get rid of some government spending, but it would just be replaced by spending on court cases. To be fair, it probably wouldn't be that much worse than government regulation either, though.

168.16.132.59 (talk) 23:09, 3 May 2010 (UTC)

There are also some problems which would be very difficult to solve with property rights because the consequences of transactions are so far removed from the transaction. So Climate Change is a perfect example. At the moment damage from CC is low, so nobody would be sueing each other. But in 50 years when damage is likely to be much higher, people will sue. But the cause of the CC is everyone. How do you sue everyone? Furthermore the damage is done. It was caused in the past. The free market would fail to prevent catastrophic Climate Change. So regulation is needed. —Preceding unsigned comment added by 81.156.79.225 (talk) 16:37, 8 December 2010 (UTC)

External Benefit Diagram

The external benefit diagram is wrong. It shows MB shifting right to SMB (so far so good) and then Qs is to the right of Qp (also correct) but Ps is greater than Pp. This would imply that the ideal social position is greater output at greater cost. Ps is found by going down from social equilibrium to the MB curve and then across to the Y axis. This would mean that Ps is lower than Pp, which is infact the desired outcome. Where Ps currently is, is the price that producers (in theory) would receive. The difference would be made by internalising the externality (eg subsidy). If this was done the diagram would also fit better with the idea of a public good. —Preceding unsigned comment added by 125.237.101.129 (talk) 11:53, 5 September 2010 (UTC)

Independent of that, it also has typos ("Exchnage" and "recieved"). 84.63.219.202 (talk) 12:50, 19 February 2011 (UTC)

burmese python

This and this added a bit on the Burmese python in the everglades. I believe that the pythons there are a problem, but it's straying a bit from the clear notion of an externality, so I don't think it's a good example. If there's a reference in a reliable source which talks about it as an externality, I might object less. CRETOG8(t/c) 01:28, 29 March 2011 (UTC)

Externalities classification

Please someone provides to list a classification of Externalities/Spillovers such as difference between: network externalities, competitive spillovers, transactions spillovers, market spillovers etc... under a common taxonomy. I will contribute within my grasp to that. Thank you. -- QuadropheniaG Talk 14:23, 8 June 2011 (UTC) — Preceding unsigned comment added by QuadropheniaG (talk • contribs)

Needs Work

Just skimming this page shows in needs lots of work. The examples are often strange and confusing. E.g., perfume as a positive externality? There are much better examples like research and development, knowledge, etc. —The preceding unsigned comment was added by 128.36.66.250 (talk) 01:59, 3 April 2007 (UTC).

There are no citations provided at all in the section on Positional Externalities — Preceding unsigned comment added by 85.103.47.142 (talk) 12:48, 11 November 2011 (UTC)

Is Internet censorship a negative example?

When music companies get governments to blacklist sites, thus blocking access to illegal content (be it socially useful or not) but also the legal content which was on that site, is that an example of negative externality?

To be more concrete, if a copyright-holder found copyright infringements on Wikipedia.org and youtube.com and went to court and got the government (or the internet service providers) to block those sites, would that be a negative example of externality? Gronky (talk) 06:36, 21 December 2011 (UTC)

My guess is that heavy copyright enforcement presents a large deadweight loss and there may be externalities involved. There are some papers on the subject but I don't think it is appropriate to update the article on externalities to refer to SOPA (or anything similar) simply because the dispute is at the forefront of our minds. Protonk (talk) 07:04, 21 December 2011 (UTC)
If you could give some links or (approximate) titles of those papers about copyright and externalities, I'd find that interesting.
I don't have any plans to add such material to the article in the near/mid-term future. I'm quite a believer in WP:DUST. Gronky (talk) 23:09, 27 December 2011 (UTC)
What market exchange is causing th is externality? What good is being traded or produced that causes censorship as a side-effect? maybe you are trying to analyse the market for government favors and rents. I don't think it works as an externality.
Information goods on the Internet are non-rivalrous. After the first unit is produced, the marginal cost is just the transmission/bandwidth cost, which is near to zero. The copyright intervention allows the producer to choose price instead of quantity, which in the model means they switch from competitive to monopolistic pricing. In a competitive market, price is determined by the combination of supply and demand (effective demand curve is flat), and each producer decides the quantity produced at a given price. A monopoly can choose the profit maximizing price.

Very Pro Statism

This page should be deleted — Preceding unsigned comment added by 72.190.45.142 (talk) 20:39, 28 January 2012 (UTC)

This article as of now is just very pro government. Shouldn't government be considered an externality as well? Enviornmental damage commited by the Government ends up putting costs on everyone and since government is an entity dependant on tax revenues it could be said that Government failure is an prime example of externality. Plus with regard to AGW and environmental damage, I suppose a point is also to be made that only human beings can control and evaluate the environment in such a way as to calculate the supposed damage which makes us unique. —Preceding unsigned comment added by 122.170.18.34 (talk) 08:14, 9 June 2010 (UTC)


I'm not sure you understand what an externality is. Externalities arrive naturally from markets. Environmental damage is a perfectly good example. The Government is not, because it does not arrive naturally as a result of market transactions. The government is a possible remedy to externalities. Although of course, there are no doubt many government transactions which in themselves have externalities 81.156.79.225 (talk) 16:32, 8 December 2010 (UTC)

Needs history section

There seems to be no discussion of the very specific and well documented history of the idea of externalities. This seems to be a large and rather strange oversight. Am I missing something? Walras101 (talk) 23:52, 26 February 2012 (UTC)

Incomplete definition - surely fair competition isn't an externality

So I don't think the definition is very clear here:

an impact on a party that is not directly involved in the transaction.

  • what kind of impact?
  • what does "directly involved" mean?
  • whats defined as a "transaction"?

Besides the point of the definition being incredibly undefinitive, can fair competition fit into the definition of an externality? Clearly competition has an impact on its competitors, who aren't directly involved in its transactions.

I'm going to change the definition to this:

A cost or benefit resulting from the actions of one party that are incurred by another party that did not agree to that action.

However, this won't solve the question about fair competition that I have.

Fresheneesz (talk) 00:59, 29 April 2010 (UTC)

I think i've solved my own problem, with this link as a source http://econ.duke.edu/~hf14/teaching/econ681b_spring03/ExternalityVersusPublicGood.pdf Fresheneesz (talk) 01:52, 29 April 2010 (UTC)


I'm afraid the definition is still problematic. We currently define an externality as "a cost or benefit not transmitted through prices that is incurred by a party who did not agree to the action causing the cost or benefit." Here are some tests:

  • I detonate a bomb inside a building without having warned its occupants, who die. The occupants clearly didn't agree with my action. Can their deaths be called a "negative externality" of my attack? If one argues that going to prison would be the price, how about doing something mischievous, but not (yet) illegal?
  • I suffer from HIV and find a cure, but too late. When I die, my executor, who also suffers from HIV, discovers my research notes and results. He willfully opens the book, reads it and succeeds to cure himself. His survival was his intention, but isn't it still a positive externality of my research (knowledge spillover)?

I think the definition needs to take into account the intention of actors. --Chealer (talk) 21:04, 29 April 2012 (UTC)

ExternE EU findings should be included

http://www.externe.info/externe_2006/expoltec.pdf Page 37, if I remember correctly includes the negative externality costs of Coal, Oil, Gas,solar,nuclear,wind and Hydro expressed in units of cents per unit of energy generated. c/kWh.

it should be included, but I'm wondering where to put the data. In the lede seems right. Boundarylayer (talk) 21:03, 15 March 2013 (UTC)

Lede

I have restored the text of the lede to this version which was a valid and properly commented edit of the previous text. As stated in the edit summary, the previous text was not well sourced and includes (OR) assertions that go beyond the definition of the term "externality." There is no competing school of thought, interpretation, or censorship involved. If anyone has valid WP:RS sources that contradict or expand on the current version, please present them here on talk with your proposed alternative text. Please consider WP:BRD. We are at the D for Discussion, so please do not continue to re-insert the Bold text that was Reverted and replaced with the current version. State your specific criticisms of the current version and propose an alternative for discussion. Thanks. SPECIFICO talk 14:56, 17 March 2013 (UTC)

I put the information on the history of the concept in the lede, as the origin of the idea should rightly be there. You decided to move the one line about who created the concept into its own heading in the article, now situated down in the nose of the page, which seems to be a little redundant. Really, why remove it from the lede, it was only 1 sentence after all?
Secondly your preferred source for defining the word externality is over half a century old, so really I do not think it is as reliable as you assume. Here is a better one IMHO http://www.auburn.edu/~johnspm/gloss/externality
I think you know that there are two schools of economic thought, and how each school defines the word 'externality' should be described in the lede of the article for the sake of balance. I believe it is also wiki policy to do so.
Boundarylayer (talk) 02:12, 25 March 2013 (UTC)
No. What do you mean? The half century old citation is to one of the most respected scholars in this field. The Auburn document is a self-published document. SPECIFICO talk 02:37, 25 March 2013 (UTC)
Externalities have been defined by marketers as the uncalculated costs and/or benefits of exchange, where uncalculated refers to costs and benefits that have not been accurately included in the exchange valuation (Mundt 1993). http://jmk.sagepub.com/content/16/1/73.abstract Journal of Macromarketing Spring 1996 vol. 16 no. 1 73-88
This is far more in line with Pigou's terminology. - http://www.jstor.org/discover/10.2307/725216?uid=3738232&uid=2&uid=4&sid=21102039738887 The Problem of Externality Carl J. Dahlman Journal of Law and Economics Vol. 22, No. 1 (Apr., 1979), pp. 141-162

Radiopharmaceuticals a positive externality of nuclear waste

To remind other editors. -The definition of externality is as follows. An externality is a cost or benefit which results from an activity or transaction and which affects an otherwise uninvolved party who did not choose to incur that cost or benefit.

Those who buy electricity(a transaction), from Clinton Nuclear Geenerating Station are positively affecting an otherwise uninvolved party( medical patients), who did not choose to incur that benefit. Boundarylayer (talk) 18:55, 15 March 2013 (UTC)

  1. ^ http://www.oecd-nea.org/med-radio/reports/MO-99.pdf The Supply of Medical Radioisotopes An Economic Study of the Molybdenum-99 Supply Chain Since the benefits may not be fully accounted for in the pricing structure, a positive externality exists. page 19
  2. ^ http://www.radiologytoday.net/archive/rt0910p20.shtml
  3. ^ http://www.sciencedaily.com/releases/2010/07/100708111326.htm
  4. ^ http://www.world-nuclear-news.org/RS-Clinton_moving_into_molybdenum_production-1409118.html
This is incorrect. The patient chooses whether to adopt that therapy. You must not re-insert your edits prior to achieving consensus on talk. Your assertion is not sufficient without acceptance and agreement of other editors. Please revert your last re-insertion. Please review WP:3RR. Thank you. SPECIFICO talk 19:15, 15 March 2013 (UTC)
I have supplied a reference by the OECD in the article, they're far more important than wikipedia editor consensus. Secondly, it is not 'incorrect'. The patient would clearly not have a choice if the therapy was not available and nuclear reactors did not exist to produce the isotopes. Only by producing these 'wastes' does the therapy become a real option/only then does the patient now have a choice.
Boundarylayer (talk) 19:23, 15 March 2013 (UTC)
Please revert your re-insertion. I have left a note on your talk page. SPECIFICO talk 19:26, 15 March 2013 (UTC)
Why exactly do you want me to revert the only well referenced positive externality in the entire article? do you have a problem with the OECD reference now? Do you have a rational objection to the edit?
I have responded to your accusations/'note' on my talk page, and I think if you actually looked first before writing your note, that I started a conversation with another user - User talk:Volunteer Marek on their talk page on the very first revert by them.
I was also the one who started the discussion here on the talk page of the Externality article at your edit summary request.
You seemingly did not check this out before accusing me of doing the exact opposite on my talk page.
Boundarylayer (talk) 19:52, 15 March 2013 (UTC)

The OECD paper is not signed, refereed or peer-reviewed. It is not WP:RS for discussion of the economic term "externality." I am warning you to revert your edit. SPECIFICO talk 20:53, 15 March 2013 (UTC)

Boundarylayer, I think what you are confusing is the concept of an externality with that of Joint production. If a farmer grows some wheat, s/he gets the grain and some straw too. Two goods out of one input (seed). But since the farmer gets to keep (and potentially sell) both grain and straw, there's no externality. The idea of joint production is more general than the concept of an externality - in some applications externalities can be modeled as instances of joint production but not all instances of joint production involve externalities.

I also agree with SPECIFICO that the source you included is not sufficient to justify the inclusion of the text.Volunteer Marek 21:48, 15 March 2013 (UTC)

Volunteer I am not, nor is the OECD, confusing the concept, but you bring up some good points in relation to the overlap between joint production and externality! It is both a case of positive externality and joint production. Those who fund a nuclear power plants construction for electricity production and therefore those who deal with the potential hypothetical fear of a nuclear accident, don't benefit at all financially if that nuclear power reactor starts joint production of medical radioisotopes. Other needy people around the world benefit. Take for example the CANDU power reactors in Canada that also produce Cobalt-60, the people who wanted the reactor built, got it built for power reasons, and not out of any altruistic desire to help save dying people around the world, or a desire to lift the quality of living of people the world over(which enriches us all), but this nevertheless is what has resulted- a case of a positive externality.
If you get sick, and require Cobalt 60 gamma knife therapy, Co-60 produced in Canada might come to the rescue. When you then survive and get better and start work again, isn't the whole community around you going to benefit by you continuing to be alive? - Is the community in this thought experiment therefore not - an uninvolved party who did not choose to incur the cost or benefit. Which is the quote taken from the article. - An externality is a cost or benefit which results from an activity or transaction and which affects an otherwise uninvolved party who did not choose to incur that cost or benefit.
SPECIFICO The OECD are a reliable source. If they classify it as a positive externality than it deserves inclusion in the article. There are other far less reliable, and non-peer reviewed, references in the article that you seemingly don't have a problem with, such as references to the far less reliable Washington Post.
Boundarylayer (talk) 22:24, 15 March 2013 (UTC)
We are not discussing the rest of the article. You may have noticed that I re-wrote the lede earlier today. It was previously incorrect and cited non-WP:RS sources. There remain many other problems in the article. They will all be addressed by future editors. It is not incumbent on any one of us to do so, nor is it appropriate for you to make the personal remark you directed at me above. You do not appear to understand the meaning of externality in economic theory as stated in the lede above. A power plant which produces radio-pharmaceutical components as a joint product with electricity may sell or donate that material as it chooses. The recipient of the benefit may use or reject such treatment, whether or not in exchange for a money price. You should revert your last edit while this talk page discussion continues. If you do not, you may face disciplinary action without further warning. Please take a step back and revert your edit while we discuss. Your re-insertion of the text violates WP policy as previously cited to you. SPECIFICO talk 22:55, 15 March 2013 (UTC)

I think the first and last source in this edit fail our test of reliability in that they appear to be self-published. There are exceptions to the self-published rule, but its up to Boundarylayer, who wants to add them to the article, to use proper BRD process to convince us that they are an RS because one of the exceptions exist, or that SELFPUB does not apply. Simply reposting after multiple editors have asked you to stop edit warring and use BRD will likely lead to a complaint against you being filed at the edit warring noticeboard. NewsAndEventsGuy (talk) 23:30, 15 March 2013 (UTC)

So how about a compromise, if we attribute the positive and negative externalities to the sources that published them? Say we begin with - According to the OECD..., and likewise, we should similarly do this for the unrelated reference that should be attributed to the Washington Post. - http://www.washingtonpost.com/wp-dyn/content/article/2008/04/29/AR2008042902602_pf.html Which is, by the way, a source that does not even have the word 'externality' in it. Yet it is my OECD source that does have the word externality in it, but it is somehow the one creating all the opposition.
What's good for the goose is good for the gander. Right?
So would that be acceptable?
I would also like to have an independent economist editor to comment on the edit.
As it really appears contradictory to suggest, as the article presently does, that education is a positive externality to society yet radiomedicines are not. You have to pay for both services right? and society similarly benefits from an individual receiving both, right? So why aren't both obvious positive externalities?
Moreover, I have noticed that the source backing up the education example is not supported by the word externality but only supported by the words external benefit. Here is the text to explain what I mean, at present this is one of the examples given for a positive externality - Increased education of individuals can lead to broader society benefits in the form of greater economic productivity, lower unemployment rate, greater household mobility and higher rates of political participation. That's fine and everything, but the Source does not mention externality at all. All it mentions is the External benefit which is far too broad a description, as lots of things produce external benefits, but are all externalities? and if so, shouldn't radiomedicines be another obvious external benefit? Here is the source backing up education as a positive externality - Weisbrod, Burton , 1962. External Benefits of Public Education, Princeton University
Boundarylayer (talk) 19:33, 16 March 2013 (UTC)
You have many "independent economists" who regularly edit WP. You may also post a request for comment or an informal notice on the WP Economics project for additional editors to come participate. If you wish to propose a wholesale change along the lines stated above, please put them here on talk for discussion before insertion into the article. Thank you. SPECIFICO talk 19:36, 16 March 2013 (UTC)
Boundary, that sort of compromise is not what consensus is all about here. If OECD is not what wikipedia defines as a reliable source no compromise between any two editors can change that fact. NewsAndEventsGuy (talk) 19:44, 16 March 2013 (UTC)
NewsAndEventsGuy Look at it this way, many of examples of externalities given in the article, for example education, are not even backed up by references that have the word 'externality' in them. None of them are WP:RS for that reason.
Boundarylayer (talk) 20:02, 16 March 2013 (UTC)
Boundary, you are getting into some serious WP:OR digging here, and though we may all do that in real life and try to form opinions and inferences from available data, that's not what we do in the WP editing process. As editors here, we use content stated by qualified secondary sources. For starters, you could make a list of all the positive and negative examples in the article that you believe are not cited to WP:RS statements. If other editors agree, the first remedy would be to investigate whether the source citations can be furnished or improved. If good sources are not available, then the statements can be tagged or removed. If other editors believe that the statements are properly sourced, then that disagreement also should be resolved on talk or other WP channels. I personally believe that the education example is tenuous and not really what's meant by externality. However, I recognize that there may be WP:RS statements to the contrary. I haven't reviewed the rest of the lists of + and - externalities, but I may do so if you decide to organize the discussion along the lines I stated above. SPECIFICO talk 20:57, 16 March 2013 (UTC)
I'll go so far as to say that I am vehemently opposed to any statement about anything that has no source at all, or if it has a source, where the source fails our policies on what constitutes reliable sources. If you spot something, by all means act on it. But if you've already made a bajillion edits to the article in a short period then do something about it on the TALK page instead of digging a deeper 3RR/edit war hole for yourself by editing the article for a bagillion-and-one times. NewsAndEventsGuy (talk) 01:00, 17 March 2013 (UTC)
I don't mean to be inflammatory, but you really are misrepresenting the edit history NewsAndEventsGuy, I initially did not include a direct reference with the word externality in it, assuming that it would be obvious to everyone that it is a positive externality, as I have explained above. This initial edit of mine was reverted, then I struck up a conversation on the editors talk page that removed it, and explained the rationale behind the edit. Upon doing so, I soon reinserted the edit with a reference that specifially stated externality in it. So it is incorrect to assume it was a typical 3RR, as the material was different on the 2nd or 3rd edit by me. Moreover the OECD are a reliable source, it is quite bewildering to have encountered someone arguing that they are not.
SPECIFICO I am glad you have recognized that the list needs work, however now that you are questioning the obvious positive externality of education. I think it may be time to really look into finding an outside mediator to take a look into this dispute.
Boundarylayer (talk) 11:20, 17 March 2013 (UTC)
You are welcome to seek mediation. I encourage you to do so. Consider: Do you think it's a positive externality for you if I bathe in the morning, if you wear a pretty necktie, or if your neighbor gives up eating potato chips? There should be multiple WP:RS for anything clearly a +/- externality that is so evident it goes on a list of examples. Cherry-picking odd examples is not our job here. Incidentally, it is not helpful to adopt a condescending tone toward other editors or the community here. Quite the opposite is true. SPECIFICO talk 14:16, 17 March 2013 (UTC)
Externalities arising from health care provision: Health services are normally assumed to be merit goods providing a private benefit for people who consume them and additional external benefits for society as a whole. http://www.tutor2u.net/economics/revision-notes/as-marketfailure-health-care.html QED radiopharmaceuticals are a positive externality.
The externality here is not from the production of nuclear power, or production of any other good that produces nuclear waste. It is from the consumption of the 'radiopharmaceutical' by a patient during the treatment for their illness. I think you are arguing that this consumption of radiopharmaceuticals - if it leads to the patient becoming healthy again - has a positive external benefit. But then this is just a specific example of an positive externality from consumption of healthcare.
Moreover, medical care in general is obviously a positive externality. - An external benefit is a benefit that someone gains because of someone else's action, outside of any market transaction between them. Immunizations give external benefits. When you get a vaccine for a certain disease, you make it less likely that you will contract the disease. That is the internal benefit. What you also do is make is less likely that other people will get the disease, because they probably will not catch it from you. That is the external benefit. http://hspm.sph.sc.edu/courses/ECON/Externality/index.html
Boundarylayer (talk) 02:46, 25 March 2013 (UTC)

Please review WP:RS. The material you cite is not qualified for use in WP. Thanks. SPECIFICO talk 02:49, 25 March 2013 (UTC)


Where in WP:RS does it say that open-courseware supplied, for example, by Samuel L. Baker, Ph.D., Professor Emeritus, University of South Carolina is inadmissable? He's number 5 on the list of open courseware. - http://oedb.org/library/features/top-100-open-courseware-projects#econ

consumption vs demand

"Consumption by one consumer causes prices to rise" This is not strictly correct. I may have 50 widgets that have been sitting in my garage for 10 years, and then I consume one, this will have no effect on the market price. More correct to say "Increased market demand by one consumer causes prices to rise". — Preceding unsigned comment added by 98.150.234.160 (talk) 20:24, 4 August 2013 (UTC)

Distinction Consumption vs. Production Externality

The distinction between consumption vs. production externalities should be made in the article. This seems to be an aspect of externalities that is often overlooked but has significant implications on government interventions and overall welfare of society. Since the issue is not yet very popular, it is quite difficult to find good sources. The following website could be a good start in my opinion: Microeconomics - Externalities. Where should this part be added, what do you think? (Econ404 (talk) 18:58, 20 November 2014 (UTC))

Construction of an airport - bad example

While the construction of an airport can have a lot of positive effects on a local economy, it could also have negative effects on the local community due to increased noise and a slight increase in risk. Perhaps a better example might be used. Flanker235 (talk) 22:14, 22 February 2016 (UTC)

Dr. Ioannides's comment on this article

Dr. Ioannides has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:


This entry ignores the important contribution to economists' understanding of the urban economy, which is replete with externalities. It also ignores the roles of pecuniary externalities in the theory of monopolistic competition and its properties. It does even link to https://en.wikipedia.org/wiki/Pecuniary_externality


We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.

We believe Dr. Ioannides has expertise on the topic of this article, since he has published relevant scholarly research:


  • Reference : Yannis M. Ioannides & Adriaan R. Soetevent, 2005. "Social Networking and Individual Outcomes Beyond the Mean Field Case," Discussion Papers Series, Department of Economics, Tufts University 0521, Department of Economics, Tufts University.

ExpertIdeasBot (talk) 21:45, 7 July 2016 (UTC)

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driving an electric vehicle

Re [1]. Yes, driving an electric car is an absence of a negative externality NOT a presence of a positive externality.Volunteer Marek (talk) 18:14, 10 February 2018 (UTC)

The Definition section

Does not state a definition of "externality". Not surprisingly therefore it does not cite a source. SPECIFICO talk 18:58, 10 February 2018 (UTC)

Examples

I've reverted GoodAtEdits's changes to the article. Let's talk about it here and see if we can come to consensus on the subject. Protonk (talk) 21:25, 24 April 2018 (UTC)

I agree that we should have a discussion about it and apologize for reverting the change in haste. Obviously it is true that, because healthcare markets are subsidized, an individual's health status creates costs borne by society at large. However, in a modern society, many sectors are partially or wholly subsidized, and thus many decisions can affect society through the channel of government. As I've stated before, these examples should really be focused on the clearest cases of private market behavior imposing external costs. Here are a handful of examples of externality that are equally valid if we are to accept the logic that ill-health is an externality due to subsidized health markets:

-Good-health caused by consuming healthy foods or fitness products. Indeed, these choices can impose billions of dollars yearly in external costs due to increased life-expectancy which is then subsidized by social security and medicare.

-Birth control creates a negative externality by preventing the birth of an individual who would then contribute to the social safety net through taxes. The costs of this foregone tax revenue are not incurred by the parents or the birth control manufacturers

-Defense Lawyers are negative externalities because they increase costs of prosecution which are borne by society while accruing private benefits to the defendant and his/her lawyer

As you can see, these aren't great examples of externalities. In all cases, including the case of ill-health, the sign of the externality is ambiguous. In all cases the "reference point" is murky. To what counterfactual should a person receiving medical care be compared? An individual with net zero effect on government revenues? Themselves prior to the onset of poor health? A person whose burden on the government is equal to the societal average? It is unclear. The inability of economists to fully appreciate the interconnectness of personal decisions, and thus fully appreciate the omnipresence of externalities, is a valid critique. One that is pointed out on this same page in the Criticism section. And rightfully so!

Let's use the examples to provide clear textbook examples that have a clear and obvious sign, and that are not dependent on some particular government structure or shared understanding of community responsibility to exist.

-GoodAtEdits

Thanks for replying here. I had hoped to be able to reply today but work has intervened. If you'll be patient I'll have a comment on this tomorrow. I think we can find a lot to agree on and I think (presaging a bit) that some of the difficulties here can be resolved in ways that will improve the article. Protonk (talk) 20:51, 25 April 2018 (UTC)
I have a few comments.
  • I've removed the "ill health" section for now, partially reverting my own changes. I think that it can be supported by evidence and within the framework of externalities (as I'll explain a bit more generally below) but it's framed inadequately and not supported specifically enough by references in the article.
  • The other section, on factory farms, is close to being duplicative but is distinct enough that we can re-write it rather than remove it. I believe that to be the case for a few reasons:
  • It's a canonical example of an externality. Damages to neighbors from ranching cattle is basically the example from Coase--damage to a farmer from a rancher is the motivating thought experiment in The Problem of Social Cost.
  • The section includes an aside on water pollution but that's not necessary. We can merge that into the water pollution bullet above and keep the social costs from antibiotic resistance.
  • Antibiotics resistance is specifically mentioned in public economics textbooks as an example of an externality (see A Course in Public Economics, p 99, cited in this paper, which is great as well as here (And multiple cited sources therein)).
  • It is not true that whether or not health costs are externalities is dependent on the role of government in providing health care. If, for example, health care was provided via a single payer system it would make the analysis of the costs much easier to perform but even with private provision health care is still excludable and rivalrous. If I'm at the doctors office due to an illness you cannot see that doctor at the same time. Further, if the doctor is paid for her time (regardless of who writes the check), it is assured that the marginal cost of anyone seeing that doctor will increase. Likewise if I receive medication I'm driving up the marginal cost of that medication for anyone else. These are both true even if we grant that "private" insurance provides for a completely internalized contract between doctor and patients (I don't grant this). You can convince yourself of this by imagining a toy model of one doctor with no patients and adding patients one by one.
  • I find the argument that good health is actually bad to be too clever by half. First, poor health resulting from "individual" market transactions like smoking or buying a soda was essentially the motivator for Pigovian taxes, which one could consider a proto-model for externalities. Second, although it may be true that in a general analysis people may incur more health care costs in the long run of a healthy life than the short run of a sick one, revealed preferences certainly show that people pay for healthcare and demand it.
  • Perhaps a better argument here is that if we decide the sign on poor health is positive rather than negative we will, by definition, exclude plenty of obvious externalities such as air pollution, water pollution simply by stating that the resulting injury from the pollution isn't an injury but a benefit to society as a whole. That's a novel enough theory (Well, not *too* novel, it's been advanced by cigarette companies in the past which is some august company) but it isn't accepted by the authors we might or do cite on the page.
  • I don't think it is a productive line of discussion to rest how we treat externalities on the role of government in the purchase or provision of a good which might be made more or less scarce or more or less valuable. Why? Because authors in the field don't seem to care about it. Damage to crops from cattle can be an externality even if the government provides or buys the cattle. The important point is that the cost is external to the private transaction--the "social" in social cost is merely opposed to "private" and doesn't imply any particular mode of government. Protonk (talk) 14:30, 26 April 2018 (UTC)

I'll try to respond briefly to your points now, might circle back after I've reflected more on your arguments:

  • Regarding factory farms, you've more or less convinced me. It could be presented more clearly, but it is appropriate.
  • In your 6th bullet point, you are describing pecuniery externalities. We have a separate bullet point to discuss these externalities. It does not make sense to separately list every excludable and rivalrous good. We could just as easily discuss attending an amusement park as being a negative externality since seats on a roller cosater are excludable and rivalrous.
  • "Revealed preferences certainly show that people pay for healthcare and demand it". This completely misses the point. It is entirely consistent that people would demand excess healthcare in a setting where long life expectancy was subsidized. This does not negate the fact that these long life expectancies are subsidized by agents external to the market. If ill-health is an externality due to increased healthcare costs borne by society (I've already argued against your pecuniary line of reasoning), then it must be the case that long healthy lives are subsidized my the elderly care costs borne by society. These examples are nearly identical in construction.
  • "I don't think it is a productive line of discussion to rest how we treat externalities on the role of government". I agree, which is why I think we should opt for examples where the the externality would exist even without the presence of government.GoodAtEdits (talk) 15:17, 26 April 2018 (UTC)
  • on the 6th bullet point I think you're right. I could make a stronger case for revealed preferences but I think the sub-point, that declaring the sign ambiguous would hazard accepted and acceptable externalities simply by definition, is stronger.
  • As for the role of government, I agree in part but I think we're driving in different directions. I feel the externalities mentioned above would exist even with wholly 'private' provisions for whatever market we're concerned with. So it's superfluous to say that we should find examples which work without government because they all do. Protonk (talk) 15:20, 26 April 2018 (UTC)

I guess I just remain unconvinced that ill-health externalities would exist with wholly private provisions of healthcare (aside from pecuniary ones). My point was never to argue that good health is bad, I brought it up only to demonstrate how objectionable it is to allow an action's effect on government revenues to define it as an externality (which I believe was your initial argument on my talk page). If your argument is that ill-health is an externality in a perfectly private market, I haven't really seen a compelling argument. Agents should internalize the health consequences of their choices. If your argument is that ill-health is an externality because healthcare costs are socialized, I agree, but think that then the good health example is equally valid and that it's better to just list neither in the examples section. GoodAtEdits (talk) 16:06, 26 April 2018 (UTC)

ill health

I don't think I can do any more research today but it might be worth it to hash out in a subsection what we can agree on with respect to health related externalities, because if the two of us are having a disagreement about this the text is probably not very clear to the reader. What I'd like to be able to do is condense and support the examples we have and frame them in wording which we can both agree on. I think that's possible and necessary since whatever the two of us may think, the literature (google scholar search isn't the most dispositive but shows that at least people are talking about it) certainly attends to the subject. Protonk (talk) 17:42, 26 April 2018 (UTC)

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