A cost or benefit to an economic agent that is not matched by a compensating financial flow. For example, siting a railway station close to a housing estate represents an externality to householders on that estate. It is an external economy if the householders benefit from shorter journey times to work (and consequent rising house prices) and an external diseconomy if the noise of trains keeps them awake at night. In relation to businesses, externalities can be defined as those economic effects of a business that are not recorded in its accounts as they do not arise from individual transactions of the business. For example, local overcrowding may arise because a large number of employees have been attracted to the neighbourhood, thus incurring extra costs for roads, schools, health care, etc. It is usually argued that governments should take steps to internalize external diseconomies, such as pollution, by means of taxation or other penalties. See also free ride; market failure

Big dictionary of business and management. 2014.

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  • Externality — Ex ter*nal i*ty, n. State of being external; exteriority; (Metaph.) separation from the perceiving mind. [1913 Webster] Pressure or resistance necessarily supposes externality in the thing which presses or resists. A. Smith. [1913 Webster] …   The Collaborative International Dictionary of English

  • externality — ex‧ter‧nal‧i‧ty [ˌekstɜːˈnælti ǁ ɜːr ] noun externalities PLURALFORM [countable usually plural] ECONOMICS something that is not directly connected to an industrial process or economic activity but has an effect on it: • Clean air rules are all… …   Financial and business terms

  • externality — externality, externalities In economic theory it is generally recognized that some of the costs and benefits of economic activities (production, exchange, and the like) are not reflected in market prices. So, for example, air pollution caused by… …   Dictionary of sociology

  • externality — 1713, from EXTERNAL (Cf. external) + ITY (Cf. ity) …   Etymology dictionary

  • externality — [eks΄tər nal′ə tē] n. 1. the quality or state of being external 2. pl. externalities an external thing …   English World dictionary

  • Externality — External redirects here. For other uses, see External (disambiguation). In economics, an externality (or transaction spillover) is a cost or benefit, not transmitted through prices,[1] incurred by a party who did not agree to the action causing… …   Wikipedia

  • Externality — A consequence of an economic activity that is experienced by unrelated third parties. An externality can be either positive or negative. Pollution emitted by a factory that spoils the surrounding environment and affects the health of nearby… …   Investment dictionary

  • externality — noun (plural ties) Date: 1673 1. the quality or state of being external or externalized 2. something that is external 3. a secondary or unintended consequence < pollution and other externalities of manufacturing > …   New Collegiate Dictionary

  • externality — /ek steuhr nal i tee/, n., pl. externalities. 1. the state or quality of being external. 2. something external; an outward feature. 3. excessive attention to externals. 4. an external effect, often unforeseen or unintended, accompanying a process …   Universalium

  • externality — noun a) The state of being external or externalized. b) A thing that is external relative to something else …   Wiktionary

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