58 Examples of an Externality

John Spacey, August 22, 2022

An externality is a cost or benefit of an activity that isn't paid by the producer of the activity. This throws off the economics of the situation because the producer won't typically consider the externality in their decision making. Externalities can create irrational situations such as a factory that produces $1 widgets that each create $50 in air pollution. The following are common examples of externalities.

Adding Stimulation to an Area (e.g. billboards that make an area famous and interesting)	Adding to Quality of Life (e.g. a pleasant cafe that improves a neighborhood)
Agricultural Runoff	Air Pollution
Anti-competitive Practices	Antibiotic Resistance
Attracting Crime / Misadventure to an Area	Biodiversity Loss
Construction Dust	Deforestation
Desertification	Destabilization / Destruction of Landforms
Destruction of Heritage	Destruction of Places of Unusual Natural Beauty
Economic Instability (e.g. promotion of speculative investments)	Environmental Injustice
Existential Risk	Fragmentation of Habitat
Habitat Destruction	Information Overload
Invasive Species	Light Pollution
Marine Debris	Medical Waste
Microplastics	Nanomaterial Pollution
Noise Pollution	Nuclear Waste
Ocean Plastics	Oil Spills
Persistent Organic Pollutants	Plastic Waste
Pleasant Architecture	Political Instability
Political Stability	Pollination by Bees
Privacy Reduction	Production of Cultural Heritage
Promotion of Rights and Freedoms	Providing Public Spaces
Radioactive Waste	Reducing the Aesthetic Appeal of an Area
Reduction in Quality of Life	Reduction in Rights and Freedoms
Resource Depletion	Secondhand Smoke
Soil Degradation	Space Junk
Spam	Species Extinction
Systemic Risk	Toxic Waste
Traffic Accidents	Traffic Congestion
Urban Heat	Water Pollution
Workplace Injuries	Workplace Stress

Everything that one does has secondary impacts. Taxing or regulating externalities can have chilling effects that may reduce economic production and quality of life. As such, this may be reserved for major damage such as significant air pollution.

Concrete Example

In Japan, it is common for large trucks to be hired to drive billboards through busy downtown areas of major cities such as Tokyo playing promotional messages over loudspeakers. These trucks emit air pollution, create noise pollution and increase traffic through critical downtown areas. If these advertisers had to pay for these externalities, this activity would likely be prohibitively expensive.