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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  1. MikeM says:

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

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  2. renew says:

    I am guessing comment #4 is a joke

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  3. 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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  4. 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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  5. Christopher says:

    Discussions of externalities…

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  6. anon says:

    Does the negative externality of poorly thought out voting count?

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  7. P says:

    Every episode of Seinfeld?

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  8. 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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