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The New Palgrave Dictionary of Economics pp 4318–4321Cite as

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Externalities

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Abstract

Externalities are indirect effects of consumption or production activity, that is, effects on agents other than the originator of such activity which do not work through the price system. In a private competitive economy, equilibria will not be in general Pareto optimal since they will reflect only private (direct) effects and not social (direct plus indirect) effects of economic activity. This article explains how this outcome arises and considers the policy responses that have been advanced to remedy the market failures stemming from externalities.

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  1. http://link.springer.com/referencework/10.1057/978-1-349-95189-5

    J. J. Laffont

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  1. J. J. Laffont
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© 2018 Macmillan Publishers Ltd.

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Laffont, J.J. (2018). Externalities. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_126

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