Synonyms
Definition
Externalities are positive and negative side effects that come from producing or consuming a good or service. The effect is not brought about by those affected. The affected third party – an individual or an organization, or society – has no control over the creation of that cost or benefit, as externalities are associated with the cause–effect chain.
Externalities as a Phenomenon
Henry Sidgwick (1901) was the first economist to articulate the “spillover effects” of production and consumption. After him, Arthur C. Pigou (1932) formalized the concept of “externalities.” Pigou’s externality theory was dominant in economics until Ronald Coase published “The Problem of Social Cost” (Coase 1960). Externality dominates the theory of economic policy (Buchanan and Stubblebine 1962).
The idea of a market economy is based on smart and rational consumer choices. These choices guide markets toward the best outcome....
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Adelstein, R. (2017). The exchange order: Property and liability as an economic system. Oxford: Oxford Scholarship Online.
Auffhammer, M. (2018). Quatifying economic damages from climate change. Journal of Economic Perspectives, 32(4), 33–52.
Best, J. (1989). Images of issues: Typifying contemporary social problems. New York: Aldine De Gruyter.
Biegler, T. (2009). The hidden costs of electricity: Externalities of power generation in Australia. Melbourne: Australian Academy of Technological Sciences and Engineering. Available at https://apo.org.au/sites/default/files/resource-files/2009/03/apo-nid4196-1189331.pdf
Bohn, H., & Stuart, C. (2015). Calculation of a population externality. American Economic Journal: Economic Policy, 7(2), 61–87.
Buchanan, J., & Stubblebine, C. (1962). Externality. Economica, 29(116), 371–384.
Castleden, W., Shearman, D., Crisp, G., & Finch, P. (2011). The mining and burning of coal: Effects on health and the environment. The Medical Journal of Australia, 195(6), 333–335.
Coase, R. H. (1960). The problem of social cost. In C. Gopalakrishnan (Ed.), Classic papers in natural resource economics. London: Palgrave Macmillan.
Cook, J., Nuccitelli, D., Green, S., Richardson, M., Winkler, B., Painting, R., Way, R., Jacobs, P., & Skuce, A. (2013). Quantifying the consensus on anthropogenic global warming in the scientific literature. Environmental Research Letters, 8(2), 1–7.
Fang, C. (2019). Carbon pricing: Correcting climate change’s market failure. Sustainability: The Journal of Record, 11(4), 162–166.
Gössling, S., Choi, A., Dekker, K., & Metzler, D. (2019). The social cost of automobility, cycling and walking in the European Union. Ecological Economics, 158, 65–74.
Hashimzade, N., Myles, G., & Black, J. (2017). A dictionary of economics (5th ed.). Oxford University Press.
Horowitz, J. (2013). How to create an externality. Journal of Economic and Social Policy, 15(2).
Manley, W., Foot, K., & Davis, A. (2019). A dictionary of agriculture and land management. Oxford: Oxford University Press.
Mayhew, S. (2015). A dictionary of geography (5th ed.). Oxford: Oxford University Press.
Mills-Knapp, S., Traore, K., Ericson, B., Keith, J., Hanrahan, D., & Caravanos, J. (2012). The world’s worst pollution problems: Assessing health risks at hazardous waste sites. Zurich/New York: Green Cross Switzerland/Blacksmith Institute.
Parry, I., Heine, D., Lis, E., & Li, S. (2014). Getting energy prices right: From principle to practice. Washington, DC: International Monetary Fund.
Pigou, A. C. (1932). The economics of welfare (3rd ed.). London: MacMillan.
Salonen, A., Fredriksson, L., Järvinen, S., Korteniemi, P., & Danielsson, J. (2014). Sustainable consumption in Finland – The phenomenon, consumer profiles and future scenarios. International Journal of Marketing Studies, 6(4), 59–82.
Sidgwick, H. (1901). The principles of political economy (3rd ed.). London: Macmillan.
Steelman, A. (2004). Jargon alert: Externality. Econ Focus, Federal Reserve Bank of Richmond, SPR, 1–6.
van den Bergh, J. (2012). What is wrong with “externality”? Ecological Economics, 74, 1–2.
Whiteman, G., Hope, C., & Wadhams, P. (2013). Vast costs of Arctic change. Nature, 499, 401–403.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Section Editor information
Rights and permissions
Copyright information
© 2023 Springer Nature Switzerland AG
About this entry
Cite this entry
Salonen, A.O. (2023). Externalities. In: Idowu, S.O., Schmidpeter, R., Capaldi, N., Zu, L., Del Baldo, M., Abreu, R. (eds) Encyclopedia of Sustainable Management. Springer, Cham. https://doi.org/10.1007/978-3-031-25984-5_73
Download citation
DOI: https://doi.org/10.1007/978-3-031-25984-5_73
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-031-25983-8
Online ISBN: 978-3-031-25984-5
eBook Packages: Business and ManagementReference Module Humanities and Social SciencesReference Module Business, Economics and Social Sciences