Environmental Engineering Reference
In-Depth Information
What are externalities?
Externalities are defined as costs of market transactions that are not captured in tra-
ditional energy costs, and they can be positive or negative. A negative externality
is one that creates side effects that could be harmful to either the general public dir-
ectly or through the environment, such as pollution generated from the burning of
fossil fuels. A positive externality, on the other hand, is a benefit that extends bey-
ond those directly initiating the activity, such as the development of a public park.
Arthur Pigou, a British economist best known for his work in welfare eco-
nomics, argued that the existence of externalities justifies government intervention
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