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.

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COMMENTS: 58


  1. Kate says:

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

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  2. Nerf says:

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

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  3. Sally says:

    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.

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  4. KB says:

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

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  5. Charlie Wood says:

    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…

    Regards,
    Charlie

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  6. Icon says:

    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?

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  7. Daniel says:

    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.

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  8. Corey says:

    Political activism for candidates I don’t like

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  9. MikeM says:

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

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  10. renew says:

    I am guessing comment #4 is a joke

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  11. aslvrstn says:

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

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  12. DaveyNC says:

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

    http://news.yahoo.com/s/ap/20091122/ap_on_bi_ge/us_unemployment_taxes

    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.

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  13. Christopher says:

    Discussions of externalities…

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  14. anon says:

    Does the negative externality of poorly thought out voting count?

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  15. P says:

    Every episode of Seinfeld?

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  16. Craig says:

    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.

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  17. matt says:

    silent but deadly farts

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  18. Donnie says:

    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.

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  19. JOE says:

    Craig:
    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

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  20. KarenS says:

    #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.

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  21. TsaiCMS says:

    The worst negative externality is when a construction site for an apartment building is undergo besides your own apartment. This eliminates whatever possibility of naps, or quiet study time.

    I better be well treated by the people who will live in those apartments, and if they do, would this be both a negative and positive externality? Negative in the short run, positive in the long run.

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  22. Eric M. Jones says:

    Ebay externalities (positive and negative)…good PhD dissertation material:

    I have often speculated that the massive success of Ebay has both positive an negative externalities.

    When I buy an old chatzky on Ebay, some company who would like to sell me a new one does not get my business. Furthermore, many items I buy will be sold again on Ebay when I no longer have need for them. The effect this will have on the industry that makes chatzkys is hard to guess. An efficient online market is a new economic monster with unstudied consequences.

    The positive externalities might be the reduction in pollution and the increase in real wealth caused by the recycling of already-made products.

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  23. assumo says:

    Half of a tree recently fell down in the backyard of the house that I rent. The landlord had an arborist cut down the rest of the tree and save the wood in a pile that her father could pick up (leaving us none, by the way). We now have a huge mound of sawdust that no one thought to dispose of. This is going to create some extra work for me, but I ultimately see it as a benefit, since I’m planning on using it for mulch. Bonus?

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  24. Alex says:

    #22:
    Your “negative externality” is not actually an externality. In the era before Ebay, producers of widgets (much easier to spell than tchotke) faced a demand curve.

    In the era after Ebay, prodcers of widgets face a new demand curve. Very likely, this demand curve has shifted inwards; at any given price of widgets, fewer are demanded. This is because old widgets are a substitute for new widgets. It is possible that the demand curve will shift outwards, since the ability to resell a good would increase the demand for it. But this effect is probably small relative to the first effect.

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  25. Dan says:

    I am really, really, ridiculously good looking, and everyone around gets to look at me.

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  26. Matt says:

    I remarried Feb 08, and my mother-in-law moved in with us June 08 when she was diagnosed with pancreatic cancer. She is doing remarkably well, but the radiation fried her GI tract and she now farts like the beans scene in Blazing Saddles.

    The negative externality is obvious to anyone who crosses our threshold and probably those on the street nearby.

    The positive externality is that she never sneaks up on me. The constant tooting is like a cat bell warning you she is approaching.

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  27. Grant says:

    Is it pickup trucks that blast throbbing bass in Texas? In Brooklyn it’s usually a Cadillac or Lexus SUV. Different cultures and all that.

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  28. Sebastian says:

    Guns are interesting, because they may just as likely (and I’d say more plausibly) have negative externalities. In a situation with high gun ownership, an armed burglar is much more likely to shoot me, assuming that I have a gun under my pillow. Same is true for the behavior of the police who are much more likely to shoot people when they consider it likely they carry guns.

    I think one of the most interesting examples of externalities are the effect of different types of business openings on property values. 7 elevens, laundromats, and burger kings are probably a bad thing for property values.
    But when a Starbucks or a Barnes&Nobles opens in a low-price neighborhood it has a positive effect on property values.

    My favorite example, though, is land value around Universities. When you built a major University, surrounding property and land value, unsurprisingly, skyrockets. So when in 1960, the Irvine Company sold 1000 acres of their 98,000 acres of land to the University of California for a symbolic 1$, they made an incredibly good deal: As an externality of UC Irvine, the property value of the remaining 97,000 acres multiplied and the company ended up with a hefty profit.

    A positive externality of faculty meetings for graduate students is left-over food ;-)

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  29. John Hyland says:

    #16, #19, #20: I’m guessing that the positive externality of owning a gun “when [she shoots her] first home invader” is that there will be one less home invader, and thus less robberies for other people.

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  30. Mike says:

    I play a football throwing game weekly at ESPNZone in NYC and can now consistently make >90% of my throws. While I pay to play each game, onlooking bystanders get free entertainment that might be valued at more than the cost of the game.

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  31. xkcd says:

    I am unattractive. This is a positive externality in that everyone else’s social status is boosted because next to me they would be considered relatively attractive.

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  32. Craig says:

    Being that I am employed in a high-end goods and services industry (sport-boats) that relies on über-expendable income, I am the benefactor of a positive externality caused by poor economic conditions. In a severely bearish market, wealthy people often have more incentive to spend their money on fun stuff rather than scarce and unfruitful investments.

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  33. Sally says:

    RE: Post #3

    Sorry I was unclear. I’ll have to work on my writing.

    Post #20 nailed it concisely:

    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.

    — KarenS

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  34. Michael says:

    My coworker’s seeing-eye dog provides a positive externality because I just like having a dog around the office and occasionally I get to pet her.

    A coworker who is allergic to dogs, of course, would get a negative externality from the same source.

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  35. MariferCMS says:

    Inevitably, other people’s actions bring externalities among us. However, some are not as bad as others. The worst externality I could think of is when a lactose intolerant person has a delicious slice of pizza placed in front of them. The slice is simply perfect and irresisitible. Because most people think irationally, the person will most probably eat the pizza without considering the externalities he causes. I would hate to have to sit through a whole class behind a lactose intolerant person after they have eaten that delicious slice of pizza.

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  36. murphstahoe says:

    parking on both sides of narrow city streets. Were one side of parking removed, the street narrowed, the sidewalk could be widened for pedestrians and provide room for sidewalk dining and the like. The negative externality of free – or even metered – parking, is that the experience one has once one gets out of the car is lessened. Those who don’t drive suffer this externality without positive gain (other than perhaps the parking keeps customers coming, keeping businesses open or prices down, but one could argue a more pleasant walkable space would attract more walking customers, and that walking customers spend more money).

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  37. ChristianCMS says:

    One very negative externality is when you are watching a movie in a theater, and there are a couple groups of people that are being really loud and irritating by throwing pieces of popcorn and candy around. Sure, these people may be having a lot of fun doing this, and the main reason to go to a movie theater is to entertain yourself, but their antics and fun do bring annoyance and a negative experience to the people that wish to enjoy the movie with no interruptions.

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  38. myron says:

    The increased cost of capital imposed by large corporations outsourcing their production.

    Think about it. Really large corporations enjoy a relatively lower cost of capital – they are generally good credit risks. When they outsource to smaller firms to do their production, those firms will probably need to acquire increased capacity to meet their production schedules, so they borrow to increase capacity. Since smaller firms are a relatively higher credit risk, their cost of capital is higher.

    So trend towards outsourcing by large corps has raised the cost of capital by pushing the risks associated with borrowing onto riskier firms thereby raising the cost of capital for everyone.

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  39. karl newman says:

    antibiotic resistance that develops from over-prescribing of antibiotics by physicians who find it easier to see 20 patients per hour if they quickly hand out antibiotics. 90% of these infections are colds caused by viruses that are not improved by antibiotics.

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  40. ray bans on my face says:

    -Sarah Palin

    Positive externality: Sarah Palin’s good looks.

    Negative externality: Sarah Palin.

    -The UFC

    Negative externality: Affliction clothing and Tapout Gear.

    Negative externality: the large increase in broadcasting sweaty, half-naked men rolling around with each other.

    -Wendy’s Triple Baconator

    Positive externality: friend’s hunger satisfied.

    Negative externality: the heart attack my bearded friend is about to have.

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  41. Holme says:

    I would award #3, Sally, the 5$ price.

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  42. Andrew says:

    Eric – suggest that as a species re-using items by selling on ebay is excellent for the environment and allows us to deploy our resources where best needed with minimal information cost. While it is good for GDP to build something new and trash something old we probably get similar utility for buying something 2nd hand for a lower price that does the same job.

    Better allocation, lower information cost does not a negative externality make!

    Equating utility and prosperity with GDP may be a negative externality.

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  43. AB says:

    Vaccination – I will be safe without any inconvinience if everybody else has it .

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  44. Paul says:

    Hmmm; Positive externality for once? Dairy farm milking equipment used to be cleaned with iodine leaving residues of iodine which created positive cross-contamination. Since switching to the more effective Chloride cleaners Australia’s iodine deficiency rate has hit third world standards.

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  45. nk says:

    King of externalities:

    Sportfans.

    So much fun when there’s a lot of people that are cheering, being happy etc. Not as fun if you are alone, or worse still: forced to endure drunk, unhappy and aggressive fans.

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  46. Eric M. Jones says:

    Curb cuts on sidewalf enable people in wheelchairs to have increased mobility on city sidewalks. You hardly ever see wheelchair-bound people struggling with curbs these days.

    On the other hand, skateboarders, rollerbladers and bicyclists love them too, frequently winding up in wheelchairs as a result of getting hit by cars. (Ask me how I know….!)

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  47. Jackson Jones III says:

    On the gun stream #20. I once lived in New Orleans (pre-Katrina) and it was pretty much assumed that in my neighborhood everyone had a gun in the house/apartment.

    The break in and robbery rate was very high. All the robbers carried guns themselves because they knew they would likely encounter a gun toting tenant. Not sure how that translates to externalities but having a gun did not deter crime but rather simply raised the shooting and murder rate.

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  48. Katie W says:

    I would call #11 a negative externality, given that my only memory of my one trip to Hershey as a child is of finding the smell completely nauseating.

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  49. Peter Smith says:

    cars scare the living daylights out of people who bike (or would bike if there were no cars to contend with). add up the social and economic costs. it’s a huge negative externality that is now only beginning to be hinted at with all the car-related health studies.

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  50. Andrew Wyld says:

    Concerned parents create a demand for increased information on child safety and child health. Increased demand for this creates a vacuum which journalists then fill, usually with anecdotal information that makes exciting reading.

    Exciting anecdotal stories are seldom in line with the majority of scientific opinion. The majority of scientific opinion holds that vaccines are the most successful public health intervention ever. Journalists like publishing alarming stories about vaccines.

    Not taking a vaccine increases the disease transmission rate and kills people for whom vaccinations are ineffective, such as babies under the age of two.

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  51. Browning says:

    Little engines that make big noises. Leaf blowers, lawnmowers, power washers, etc. How come cars are muffled but Harleys aren’t?

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  52. Bob G says:

    Positive externality: bikinis on beautiful women at the beach.

    This might be a negative externality for some women, however.

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  53. Stephen says:

    My favorite example of externalities; from a problem set in undergrad.

    “I am unhappy when I am hungry. When I am unhappy while grading, I give students lower grades. This is a negative externality, and therefore students should subsidize my food.

    Explain the logical flaw in this argument. Students unable to do so should note that I can replicate the argument for every other item in my consumption bundle.”

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  54. Patrick says:

    Obama. Biggest negative externality of my life. One trillion added to Bush’s 400B deficit which I and my children and grandchildren will have to pay off, all so that he could deliberately increase the unemployment rate by 4 points .

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  55. M. Byrd says:

    my fellow bankteller talks incessantly about nothing. i truly believe it afftects my productivity at work.

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  56. Ben says:

    the rise of texting and driving after the cellphone ban for drivers

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  57. Jenny says:

    Christmas decorations in the neighbours’ front yards.

    One of our neighbours has put up all of these gorgeous decorates on their house and in their front yard. They seem to have a doctor zeus theme. But the best part, which makes me smile every time I see it, is they have put a little red wooden door and tiny window with lights around each, on a tree in the front yard. I can just imagine the tiny creatures that live in that tree. Too cute!

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  58. Cain says:

    Sat Nav.

    Positive due to the time saved on each journey creating an obvious benefit to the environment through less CO2 expenditure by my car (I don’t own a Toyota Prius).

    Negative because it regularly thinks that the road I am actually on doesn’t exist. Then I have an argument with it, and because it can’t answer back I become more frustrated with it, then my driving becomes more erratic on the real/make believe road. Also negative because it takes away the detours that I used to make previously whilst lost on other roads that really do exist, and which have some points of interest on them which I wouldn’t have discovered if Uppity Mrs. Sat Nav had her way.

    In fact, all things considered, I might remove the Sat Nav and go back to the way things were when roads were real and you could have a reasonable argument with the woman you were ‘really’ in the car with!!!

    Anything to do with Reality TV. Now there’s an oxymoron if ever I heard one. (I mean wrote one).

    Oh and Toyota Prius. Positive impact on the environment. Negatively looks like a slug just after you pour salt on it.

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