What are positive and negative externalities?
Positive and negative externalities are unintended effects generated by projects
Image by Дмитрий Филюшин from Pixabay
Externalities are the social, economic and environmental effects indirectly caused by the sale of a product or service. the president of North American Economic and Finance Association (North American Economics and Finance Association), Dominick Salvatore, says that externalities boil down to "the difference between private costs and social costs or between private profits and social profits." This means that externalities arise in the economy and can be negative or positive for society.
Negative externalities - How much does the company cost to society?
A company can generate factors that harm other companies and the people around them in ways that are not directly related to the goods it produces, but rather to their consequences.
See examples of negative externalities in our daily lives:
meat production
Livestock has a very high water footprint and pasture areas are responsible for a lot of deforestation. Fishing can also have a downside, as endangered animals end up accidentally caught by fishermen and seriously injure themselves, not always surviving.- Reducing red meat consumption is more effective against greenhouse gases than giving up driving, experts say
Transport
Suppose company X produces cars and trucks. Its externalities range from the medical costs of miners who get sick to extract the raw material from vehicles (iron, for the steel structure, copper, for electrical wiring, etc.) to the medical costs of people who get sick by inhaling the smoke produced by the consumed fuel. In addition, the pollution of the sea when transporting imported materials by ship to the factory, the public space privatized by each vehicle (the traffic in São Paulo says so) and many other consequences, such as the pollution generated by automobiles.
Textile industry
The industry created the concept of programmed obsolescence, making products that last less or launching improved product models (or sometimes just with a different color, but a new fashion is already created) little by little, making the consumer believe who needs the new model when the old one still works perfectly. The result of this: a lot of garbage, air, soil and water pollution. In the case of the textile industry, this sales technique has a more specific name, it is called the practice of fast fashion. Better understand this concept and its counterpoint in the articles: "What is fast fashion?" and "What is slow fashion and why adopt this fashion?".
cigarettes
Even those who don't smoke suffer from the effects of smoke and other forms of pollution caused by cigarettes. The more than 4,700 toxic substances it contains contaminate the soil and water.
- Cigarette butt: a great environmental villain
- What to do with the butt?
services
Electrician, bricklayer, plumber... are you worried about the place where the waste generated by construction works in your house is disposed of? What about cleaning, how much is spent on water and cleaning products? Is there any waste?
In addition to home services, many others can have their consequences, for example, medical services for us and for animals generate hospital waste, which is mostly incinerated, generating air pollution.
Positive externalities - How much does the company generate for society?
Companies can also “unintentionally” cause benefits to other companies and the population, which are called positive externalities.
See examples of positive externalities closer to our daily lives:
social organizations
By providing social services, NGOs, associations, foundations and other entities are part of the government's work, reducing public spending.
schools and universities
Many studies have linked a higher level of education with indirect benefits, such as reduced child mortality and crime.
How can companies help reverse negative situations caused by their goods or services offered?
A study suggests and mathematically justifies that there is a limitation for negative externalities and that property rights are well defined to try to “internalize externalities”, in the words of the author. This would be following Coase's theorem, explained in the following video:
It is also interesting to hear the opinion of consumers. If you have a company, leave a suggestion box at the company's headquarters and stores and a special space for this on your website.
And parallel projects that help to reduce negative externalities can still be done. For example, against the problems of incidental fishing mentioned in this text, conservation institutions associate fishermen with proposals for environmental education, such as the Tamar Project's Marine Turtles and Fisheries Interaction Program. Against the problem of cigarette butts, there are projects for recycling cigarette butts. These are just a few ways to help the environment, society and even our pockets. Good ideas always come up, maybe you don't have one?
