Externality

Externalities are outputs of production and consumption that impact disconnected third parties. The concept of externalities is often applied to the impacts of pollution. Driving into a congested city centre presents negative externalities, for example, while walking or cycling produces a positive externality. The increased pollution and congestion that negatively impact disconnected third parties outweigh the nominal good intended by the act of driving into the city centre. The benefits of workplace training create a positive externality as the expected benefits of the outputs of the training on the employee population of the company providing the training and on the company itself outweigh the individual benefits to the person receiving the training. The impacts of excess alcohol consumption (drag on public health systems, traffic accidents, public order etc) outweigh the benefits to alcohol producers and retailers so present a negative externality. Positive externalities can be enhanced through the use of government subsidies; negative externalities can be deterred through the use of punitive taxation.