What's Your Best Externality?

The last two years I’ve run an “externality” contest in my giant intro class, offering $5 to the student who comes up with the best example.

Both positive and negative externalities are welcome. I call on five students to tell the class their examples. My favorite this year was the student whose brother started wearing cut-off t-shirts (muscle shirts) but promptly proceeded to gain 100 pounds of fat. Worse still, the family name being Quackenbush, the brother had a duck tattooed on his flabby upper arm.

By voice vote, however, the class awarded the $5 to a woman who offered the negative externality of the throbbing bass played full-blast on the pickup truck parked in the lane next to you at a stoplight.


Negative externality: When my husband buys cheap, nasty dog treats which the dog consumes, then regurgitates...on me.


Can I just say I stepped in an externality this weekend?


My neighbor has ADT alarm system advertising on their front lawn - little sign in their flower bed and such. That creates a negative externality the same way the Club does for auto theft.

In contrast, I own a .40 Beretta and sleep with it next to my bed (I'm single without kids, so it's not as dangerous as it sounds). When I shoot my first home invader, it will provide a positive externality similar to the LoJack.

Actually, it's widely known in my area that most people own firearms. I think the positive externality from that is already in action.


Other people's lack of style. Why should I have to see that just so they can wear cheap clothes?

Charlie Wood

Someone pulled the fire alarm in UTC (on the UT campus) this morning, probably to avoid a midterm, just as my health econ professor was (finally!) starting to talk about health care reform in the US. Of course, the building was evacuated. Who knows how many students and faculty members were affected...



To be incredibly uncreative, pollution caused by production whose value is not covered in the cost of production.

To be more creative, bad governance (that is, politicians who do not implement pareto-efficient public policies) could be said to be an externality of partisan politics.

The market (which one might call the ballot boxes) is where voters exchange votes for the feeling that they elected the right person for the job and whatever expected utility they will get from that person or their opponents winning.

There is a political incentive for a politician to compromise the principle of good governance in order to affiliate with a party, because voters will be more likely to support them. Consequently, uneducated voters often vote party-line, regardless of the actual issues or the merits of either politician's opinions.

Thus, we can often end up with bad politicians in office if they're able to energize a large enough sector of the electorate to win a primary and party members will vote for them in the general election strictly because of their membership.

How's that for a not-so-common example?



Good: my male flatmate stores his Limburger cheese in our refrigerator. I don´t like Limburger. And I don´t like to clean the house. Since we have a female flatmate, the bathroom is always clean. But in the first place we decided to share our flat with her, because she is very beautiful.

Bad: a very large disco opened in our neighborhood and the low prices for beer and vodka attract a, lets say: lower class, audience. My bicycle is in very bad shape now.


Political activism for candidates I don't like


Negative externality: this contest. Just look at all the bad press poor Mr. Quackenbush is getting!


I am guessing comment #4 is a joke


Positive externality: For miles around the Hershey's and M&M/Mars factory in PA it smells like chocolate and deliciousness.


It was entirely serendipitous that this request for externalities popped in to me RSS reader at the same time that this article popped in:


The headline reads: "Rising unemployment taxes could hinder hiring".

Examples from the story:

• Chuck Ferrar, who owns a liquor store in Annapolis, Md., expects to pay $9,000 in unemployment taxes next year, up from $3,000 this year. Health care costs for his employees will rise by $8,000, or 17.5 percent. "When you start adding this up, it turns into real money," he said. "If I lose an employee through attrition, I will not replace him. You can't afford to do it."

• Sam Schlosser, owner of Plymouth Foundry Inc. in Plymouth, Ind., said his unemployment tax bill could double next year. Revenue at the family-owned company, which makes iron castings for machine parts, has fallen about 50 percent, he said. In case of higher taxes, his company may have to consider layoffs, he said.

• Marjorie Feldman-Wood, president of Al's Beverages in East Windsor, Conn., which makes soda fountain syrup, said higher taxes would make pay raises less likely. Connecticut is borrowing from the federal government, and employers fear the state will have to raise taxes soon to repay the loan. "There's only so much money at the end of the day," she said.

That's a pretty big negative externality.



Discussions of externalities...


Does the negative externality of poorly thought out voting count?


Every episode of Seinfeld?


Sally --

Why would posting an alarm sign on your front lawn would be negative externality, while "it's widely known in my area that most people own firearms" is positive externality? Both statements seem to do the same thing -- send the message to potential burglars to avoid this house specifically (the alarm sign) or this neighborhood in general (we all own guns).

How is deterring a burglar via an alarm sign inherently negative, yet deterring a burglar by letting everyone think you have a gun inherently positive?

In fact, the "we don't have alarms but we all own guns" message merely tells the burglar that he should break in when no one is home. With the alarm sign, assuming the alarm is on (or they even have an alarm, and not just a sign), there's no safe time to break in, or if you do break in, you have to be quick about it, before police respond.

The best solution is to have an alarm sign and convince everyone that you own a gun, regardless of whether you actually have an alarm and/or a gun.



silent but deadly farts


Your $5 contest probably has a negative externality on the students' other classes, which suffer because the students are trying to think up externalities for your class.


I agree that was a confusing post, but I think the thought behind her ADT alarm point was that it somehow encourages burglars to rob a house without the alarm. (That or she thinks it's a negative externality to take away the robber's chance to make some income lol)
And the gun is a positive one because it protects all the people in the neighborhood.
All in all, pretty bad examples and a clear lack of understanding externalities


#16 Craig: Because the alarm sign tells the burglar which houses do (and presumably don't) have alarms in their house. If a burglar is canvassing a neighborhood, he's more likely to choose a house that doesn't have one of the signs.

When it comes to guns, the burglar has no way of knowing which houses have guns and which don't. If it's known that many houses in a neighborhood have a gun, he's more likely to skip that neighborhood altogether, rather than take a chance.