The negative externality refers to all kinds of harmful effects for society, generated by production or consumption activities, which are not present in their costs. For the environment, human beings and biodiversity negative externalities They are quite important to analyze.
For this reason, we are going to dedicate this article to telling you what negative externalities are, their characteristics and main consequences for the environment.
Table of Contents
What are negative externalities
We can define externalities as those secondary effects caused by the activity of an individual or company that are not responsible for all the social or environmental consequences of that activity.
In general terms, there are two types of externalities, positive and negative, which we will expand on below. To understand it better: A clear example of a positive externality is the pollution that an industry produces in the environment when it produces cars. This company is responsible for the acquisition of materials, conversion into vehicles and sales, but given the negative externalities of these activities, it may have used highly polluting machinery in the production process, with serious consequences for the environment.
Positive externalities are all the positive effects of the activities of members of society, not implicit in the costs or benefits of those activities. The definition of a positive externality not limited to any particular field or science, includes all the positive effects, large and small, that the actions of any individual or company can have on our society.
We are talking about positive consequences that are not included in production costs or purchase prices, but which can have very beneficial results for society as a whole. The investment of hospitals and laboratories to find cures for certain diseases is an example of this. At first, one might think that this commitment to R&D could cost a lot if researchers don't find a cure quickly.
Reality tells us quite the opposite, that this type of activity is very necessary for the well-being and health of people, since sooner or later a drug will be discovered that lessens the effects of the associated disease. This medicine, which will take time to obtain, added to a large economic investment, will have a very positive externality on society by saving thousands of lives, but this is not reflected in the investigations that have been carried out and faced for so long.
Likewise, there are many more activities that can generate positive externalities for society, which in turn are essential for its proper functioning:
- Invest in the maintenance of public goods (roads, buildings, parks, stadiums, hospitals).
- Education (maintenance of schools, qualified teachers, adequate curriculum).
- Medical Investigation (vaccines, drugs, innovative treatments).
Unlike a positive externality, a negative externality is a consequence of undertaking any activity that causes harm to society, not implied by its cost. Although we are dealing with concepts from the economic field, these concepts can be extrapolated to any area of daily life.
A good example of a negative externality is the pollution of the environment, especially industry, by large corporations. Imagine the case of a large mining company specializing in the extraction and processing of coal. When measuring the cost of carrying out an activity, they do not take into account the high level of pollution that it will cause to the environment. This is considered a negative externality and It is the result of the company's production process. and is not reflected in the sales price or the cost of producing the coal.
If we stop and think, almost all actions have negative externalities for society. For example, tobacco use has harmful side effects for the user's health, but creates negative externalities such as depreciation of infrastructure (if a person smokes in a room, the walls can be discolored and damaged by the smoke), and it can even have a negative impact on someone's health (asthmatic patients inhaling cigarette smoke).
How to control negative externalities and enhance positive ones?
The government has measures to control and reduce the generation of negative externalities, such as:
- Tax the most polluting companies to promote the use of renewable energy and sustainable production processes.
- Regulate certain activities (for example, smoking, traffic in big cities).
- Educational programs and social awareness.
On the other hand, there are also mechanisms that enhance and increase the positive externalities generated by companies and people:
- Grants to educational centers (nurseries, schools, etc.).
- Provide funding for research and development, especially in the scientific and medical fields.
Externalities, whether positive or negative, they exist not only in the economic sphere of society. Any type of behavior, such as smoking or throwing plastic on the sidewalk, can have short/long-term effects on society, which can be negative or positive, depending on the behavior.
Examples of negative externalities
Let's think about it, all our actions, however insignificant they may be for us, have an impact on the rest of the people who make up our society.
Negative externalities arise when actions that we take as companies, individuals or households in an activity have harmful secondary effects for third parties. These effects are not included in the total cost. The negative effects by emphasis are not present in the production nor in the prices of public services at the moment of consumption.
Negative externalities, like positive externalities, They are an economic concept. But it should be noted that these can equally be applied outside the economic world. Thus, not only economic activities generate externalities, but also those activities that are identified as non-economic.
Externalities are perceived and direct effects that are not present in the price paid for production, use or consumption.
The examples of negative externalities given below can help us to deepen our understanding of such externalities. We know that the sources of negative externalities can be infinite. However, as an example, we can point to the following.
- of smoking
- environmental pollution
- Alcohol abuse
- radioactive waste etc
- engine noise is too loud
It can be inferred that a negative externality is a huge chain of actions and influences with costs.
I hope that with this information you can learn more about negative externalities and their characteristics.