Editing Externality (section)

==Examples==

Externalities may arise between producers, between consumers or between consumers and producers. Externalities can be negative when the action of one party imposes costs on another, or positive when the action of one party benefits another.

{| class="wikitable"
|+Classification of externalities
|
|Consumption
|Production
|-
|Negative
|Negative externalities in consumption
|Negative externalities in production
|-
|Positive
|Positive externalities in consumption
|Positive externalities in production
|}

===Negative===
[[File:Empire State Building Night.jpg|thumb|[[Light pollution]] is an example of an externality because the consumption of street lighting has an effect on bystanders that is not compensated for by the consumers of the lighting.]]

A '''negative externality''' (also called "external cost" or "external diseconomy") is an economic activity that imposes a negative effect on an unrelated third party, not captured by the market price. It can arise either during the production or the consumption of a good or service.<ref name="externality">{{cite web |title=Microeconomics – Externalities |url=http://principles-of-economics-and-business.blogspot.com/2014/10/microeconomics-externalities.html |access-date=2014-11-23}}</ref>{{better source needed|reason=[[WP:BLOGS]]|date=July 2022}} Pollution is termed an externality because it imposes costs on people who are "external" to the producer and consumer of the polluting product.<ref>{{Cite book |title=Economics and the Environment |last=Goodstein|first=Eban |publisher=Wiley |isbn=9781118539729 |page=32 |date=2014-01-21}}</ref> [[Barry Commoner]] commented on the costs of externalities:
<blockquote>Clearly, we have compiled a record of serious failures in recent technological encounters with the environment. In each case, the new technology was brought into use before the ultimate hazards were known. We have been quick to reap the benefits and slow to comprehend the costs.<ref>Barry Commoner "Frail Reeds in a Harsh World". New York: The American Museum of Natural History. ''Natural History''. Journal of the American Museum of Natural History'', Vol. LXXVIII No. 2, February, 1969, p. 44</ref></blockquote>
Many negative externalities are related to the environmental consequences of production and use.  The article on [[environmental economics]] also addresses externalities and how they may be addressed in the context of environmental issues.

{{blockquote|"The corporation is an externalizing machine (moving its operating costs and risks to external organizations and people), in the same way that a shark is a killing machine." - [[Robert A. G. Monks|Robert Monks]] (2003) Republican candidate for Senate from Maine and corporate governance adviser in the film "[[The Corporation (2003 film)|The Corporation]]".}}

==== Negative production externalities ====
[[File:Usine UNION CARBIDE SOUTH CHARLESTON KANAWHA RIVER. from NARA 551180.jpg|thumb|right|200px|Effluent flows from industrial plants can pollute waterways. ]]
[[File:Externalities of cars and automobility and their connections with harms to people and the environment.jpg|thumb|Diagram of the [[Societal effects of cars#Public or external costs|externalities of cars and automobility]] and their negative impacts<ref>{{cite journal |last1=Miner |first1=Patrick |last2=Smith |first2=Barbara M. |last3=Jani |first3=Anant |last4=McNeill |first4=Geraldine |last5=Gathorne-Hardy |first5=Alfred |title=Car harm: A global review of automobility's harm to people and the environment |journal=Journal of Transport Geography |date=1 February 2024 |volume=115 |pages=103817 |doi=10.1016/j.jtrangeo.2024.103817 |issn=0966-6923}}</ref>]]
Examples for '''negative production externalities''' include:
* [[Air pollution]] from burning [[fossil fuels]]. This activity causes damages to crops, materials and (historic) buildings and public health.<ref>{{cite journal |title=Externalities of Energy Methodology 2005 Update Other impacts: ecosystems and biodiversity |vauthors=Torfs R, Int Panis L, De Nocker L, Vermoote S | journal= EUR 21951 EN – Extern E |year = 2004 |pages = 229–37 |editor= Peter Bickel |editor2=Rainer Friedrich |publisher=European Commission Publications Office, Luxembourg}}</ref><ref>{{cite book |title=Externalities of Energy Methodology 2005 Update |chapter=Impact pathway Approach Exposure – Response functions |vauthors=Rabl A, Hurley F, Torfs R, Int Panis L, De Nocker L, Vermoote S, Bickel P, Friedrich R, Droste-Franke B, Bachmann T, Gressman A, Tidblad J |pages= 75–129 |editor= Peter Bickel |editor2=Rainer Friedrich |publisher=European Commission Publications Office |location=Luxembourg |year=2005 |chapter-url=http://www.externe.info/externe_d7/sites/default/files/methup05a.pdf |isbn=978-92-79-00423-0 }}</ref>
* [[Anthropogenic climate change]] as a consequence of [[greenhouse gas emissions]] from the burning of fossil fuels and the rearing of livestock. The ''[[Stern Review]] on the Economics of Climate Change'' says "Climate change presents a unique challenge for economics: it is the greatest example of [[market failure]] we have ever seen."<ref>{{Cite book
  | last = Stern
  | first = Nicholas
  | author-link = Nicholas Stern
  | contribution=Introduction
  | title = The Economics of Climate Change The Stern Review
  | publisher = Cambridge University Press
  | year = 2006
  | url = http://www.hm-treasury.gov.uk/d/Part_I_Introduction_group.pdf
  | isbn = 978-0-521-70080-1
  }}</ref>
* [[Water pollution]] from industrial effluents can harm plants, animals, and humans
* [[Email spam|Spam emails]] during the sending of unsolicited messages by email.<ref>{{cite journal |last1=Rao |first1=Justin M |last2=Reiley |first2=David H |title=The Economics of Spam |journal=Journal of Economic Perspectives |date=August 2012 |volume=26 |issue=3 |pages=87–110 |doi=10.1257/jep.26.3.87 |doi-access=free }}</ref>
* [[Government regulation]]: Any costs required to comply with a law, regulation, or policy, either in terms of time or money, that are not covered by the entity issuing the edict (see also [[unfunded mandate]]).
* [[Noise pollution]] during the production process, which may be mentally and psychologically disruptive.
* [[Systemic risk]]: the risks to the overall economy arising from the risks that the banking system takes. A condition of [[moral hazard]] can occur in the absence of well-designed [[banking regulation]],<ref>{{citation |last1=White |first1=Lawrence J. |last2=McKenzie |first2=Joseph |last3=Cole |first3=Rebel A. |title=Deregulation Gone Awry: Moral Hazard in the Savings and Loan Industry |date=3 November 2008 |ssrn=1293468 }}</ref> or in the presence of badly designed regulation.<ref name="De1998">{{Cite report | last1 = De Bandt | first1 = O. | last2 = Hartmann | first2 = P. | year = 1998 |title = What Is Systemic Risk Today? | pages = 37–84 |publisher=Bank of Japan| url = http://www.imes.boj.or.jp/cbrc/cbrc-02.pdf |url-status=dead |archive-url=https://web.archive.org/web/20030417135702/http://www.imes.boj.or.jp/cbrc/cbrc-02.pdf |archive-date=17 April 2003}}</ref>
* Negative effects of [[Factory farming|Industrial farm animal production]], including "the increase in the pool of antibiotic-resistant bacteria because of the [[overuse of antibiotic]]s; air quality problems; the contamination of rivers, streams, and coastal waters with concentrated animal waste; animal welfare problems, mainly as a result of the extremely close quarters in which the animals are housed."<ref>{{Cite news
  | last = Weiss
  | first = Rick
  | title = Report Targets Costs Of Factory Farming
  | newspaper = Washington Post
  | date = 2008-04-30
  | url = https://www.washingtonpost.com/wp-dyn/content/article/2008/04/29/AR2008042902602_pf.html}}</ref><ref>{{Cite web
  | last = Pew Commission on Industrial Farm Animal Production
  | title = Proc Putting Meat on The Table: Industrial Farm Animal Production in America
  | publisher = The Johns Hopkins Bloomberg School of Public Health
  | url = http://www.ncifap.org/reports/ }}.
</ref>
* The depletion of the stock of fish in the ocean due to [[overfishing]]. This is an example of a [[Common Property Resource|common property resource]], which is vulnerable to the [[tragedy of the commons]] in the absence of appropriate environmental governance.
* In the United States, the cost of storing [[nuclear waste]] from [[nuclear plant]]s for more than 1,000 years (over 100,000 for some types of nuclear waste) is, in principle, included in the cost of the electricity the plant produces in the form of a fee paid to the government and held in the [[Nuclear Waste Policy Act|nuclear waste superfund]], although much of that fund was spent on [[Yucca Mountain nuclear waste repository]] without producing a solution.  Conversely, the costs of managing the long-term risks of disposal of chemicals, which may remain hazardous on similar time scales, is not commonly internalized in prices.  The USEPA regulates chemicals for periods ranging from 100 years to a maximum of 10,000 years.

==== Negative consumption externalities ====
Examples of '''negative consumption externalities''' include:
[[File:Negative_Consumption_Externality.png|thumb|Negative consumption externality]]
* [[Noise pollution]]: Sleep deprivation due to a neighbor listening to loud music late at night.
* [[Antibiotic resistance]], caused by increased usage of antibiotics: Individuals do not consider this efficacy cost when making usage decisions.  Government policies proposed to preserve future antibiotic effectiveness include educational campaigns, regulation, [[Pigouvian taxes]], and patents.
* [[Passive smoking]]: Shared costs of declining health and vitality caused by smoking or alcohol abuse. Here, the "cost" is that of providing minimum social welfare. Economists more frequently attribute this problem to the category of [[moral hazard]]s, the prospect that parties insulated from risk may behave differently from the way they would if they were fully exposed to the risk. For example, individuals with insurance against automobile theft may be less vigilant about locking their cars, because the negative consequences of automobile theft are (partially) borne by the insurance company.
* [[Traffic congestion]]: When more people use public roads, road users experience congestion costs such as more waiting in traffic and longer trip times. Increased road users also increase the likelihood of road accidents.<ref>{{Cite book | last1 = Small | first1 = Kenneth A. | last2 = José A. Gomez-Ibañez | year = 1998 | title = Road Pricing for Congestion Management: The Transition from Theory to Policy| publisher = The University of California Transportation Center, University of California at Berkeley| page = 213 }}</ref>
*  Price increases: Consumption by one party causes prices to rise and therefore makes other consumers worse off, perhaps by preventing, reducing or delaying their consumption. These effects are sometimes called "[[pecuniary externalities]]" and are distinguished from "real externalities" or "technological externalities". Pecuniary externalities appear to be externalities, but occur within the market mechanism and are not considered to be a source of [[market failure]] or inefficiency, although they may still result in substantial harm to others.<ref name="LiebowitzMargolis1994">{{cite journal |last1=Liebowitz |first1=S. J |last2=Margolis |first2=Stephen E |title=Network Externality: An Uncommon Tragedy |journal=Journal of Economic Perspectives |date=May 1994 |volume=8 |issue=2 |pages=133–150 |doi=10.1257/jep.8.2.133 |doi-access=free }}</ref>
* Weak [[public infrastructure]], air pollution, climate change, work misallocation<!--maintenance of infrastructure and cars as well as production and freight transport-->, resource requirements and land/space requirements as in the [[externalities of automobiles]].<ref>{{cite journal |last1=Gössling |first1=Stefan |last2=Kees |first2=Jessica |last3=Litman |first3=Todd |title=The lifetime cost of driving a car |journal=Ecological Economics |date=1 April 2022 |volume=194 |pages=107335 |doi=10.1016/j.ecolecon.2021.107335 |s2cid=246059536 |language=en |issn=0921-8009|doi-access=free |bibcode=2022EcoEc.19407335G }}</ref>

===Positive===
A positive externality (also called "external benefit" or "external economy" or "beneficial externality") is the positive effect an activity imposes on an unrelated third party.<ref>{{cite book |last=Varian |first=H.R.|date=2010|title=Intermediate microeconomics: a modern approach |location=New York, NY |publisher=W.W. Norton & Co}}</ref> Similar to a negative externality, it can arise either on the production side, or on the consumption side.<ref name="externality" />

A positive production externality occurs when a firm's production increases the well-being of others but the firm is uncompensated by those others, while a positive consumption externality occurs when an individual's consumption benefits other but the individual is uncompensated by those others.<ref>Gruber, J. (2010) Public Finance and Public Policy, Worth Publishers. G-8 (Glossary)</ref>

==== Positive production externalities ====
Examples of '''positive production externalities'''

[[File:Beekeeper at work.jpg|thumb|right|200px|Beekeepers' hives of bees can help pollinate the surrounding crops, which is a positive production externality.]]
* A [[beekeeper]] who keeps the [[bees]] for their [[honey]]. A side effect or externality associated with such activity is the [[pollination]] of surrounding crops by the bees. The value generated by the pollination may be more important than the value of the harvested honey.
* The corporate development of some [[free software]] (studied notably by [[Jean Tirole]] and [[Steven Weber (professor)|Steven Weber]]<ref>''The success of open source'' [[Steven Weber (professor)|Steven Weber]], 2006 Harvard University Press. {{ISBN|0-674-01292-5}}.</ref>)
* [[Research and development]], since much of the economic benefits of research are not captured by the originating firm.<ref>{{cite web |title=Externalities - Definition and examples |url=https://conceptually.org/concepts/externalities |website=Conceptually |access-date=26 Jan 2021}}</ref>
* An industrial company providing first aid classes for employees to increase on the [[job safety]]. This may also save lives outside the factory.
* Restored historic buildings may encourage more people to visit the area and patronize nearby businesses.<ref>{{cite journal |last1=Romero |first1=Ana Maria |title=The Positive Externalities of Historic District Designation |journal=The Park Place Economist |date=1 January 2004 |volume=12 |issue=1 |url=https://digitalcommons.iwu.edu/parkplace/vol12/iss1/16/ }}</ref>
* A foreign firm that demonstrates up-to-date technologies to local firms and improves their productivity.<ref>{{cite journal |last1=Iršová |first1=Zuzana |last2=Havránek |first2=Tomáš |title=Determinants of Horizontal Spillovers from FDI: Evidence from a Large Meta-Analysis |journal=World Development |date=February 2013 |volume=42 |pages=1–15 |doi=10.1016/j.worlddev.2012.07.001 |s2cid=153632547 |url=http://www.nusl.cz/ntk/nusl-124047 }}</ref>
* [[Public transport]] can increase economic welfare by providing transit services to other economic activities, however the benefits of those other economic activities are not felt by the operator, it can also decrease the negative externalities of increasing road patronage in the absence of a [[Congestion pricing|congestion charge]].<ref>{{Cite journal |last1=Elgar |first1=Ilan |last2=Kennedy |first2=Christopher |date=2005-06-01 |title=Review of Optimal Transit Subsidies: Comparison between Models |url=https://ascelibrary.org/doi/10.1061/%28ASCE%290733-9488%282005%29131%3A2%2871%29 |journal=Journal of Urban Planning and Development |language=EN |volume=131 |issue=2 |pages=71–78 |doi=10.1061/(ASCE)0733-9488(2005)131:2(71) |issn=0733-9488|url-access=subscription }}</ref>
* The personal cost of an education will have an external benefit to society.<ref name="boyes_pg105_quoted">{{cite book
  | last1 = Boyes
  | first1 = William
  | last2 = Melvin
  | first2 = Michael
  | title = Microeconomics, Fifth Edition
  | publisher = Houghton Mifflin Company
  | year = 2002
  | page = 105
  | quote = When you acquire an education, however, you do not get a check in the amount of savings your education will create for society.
  | isbn = 0-618-12795-X
}}</ref>

[[File:Pos_consumer_externality.png|thumb|Positive consumption externality]]

==== Positive consumption externalities ====
Examples of '''positive consumption externalities''' include:
* An individual who maintains an attractive house may confer benefits to neighbors in the form of increased [[real estate appraisal|market values]] for their properties. This is an example of a pecuniary externality, because the positive spillover is accounted for in market prices. In this case, house prices in the neighborhood will increase to match the increased real estate value from maintaining their aesthetic. (such as by mowing the lawn, keeping the trash orderly, and getting the house painted) <ref>{{cite web |last1=Samwick |title=What Pecuniary Externalities? |url=https://economistsview.typepad.com/economistsview/2007/01/what_pecuniary_.html |website=Economist's View |access-date=8 November 2020}}</ref>
* Anything that reduces the rate of transmission of an infectious disease carries positive externalities.  This includes vaccines, quarantine, tests and other diagnostic procedures.  For airborne [[infection]]s, it also includes masking.  For waterborne diseases, it includes improved sewers and sanitation.<ref><!-- Externalities, public goods, and infectious diseases -->{{cite Q|Q111367750}}</ref> (See ''[[herd immunity]]'')
* Increased [[education]] of individuals, as this can lead to broader society benefits in the form of greater economic [[productivity]], a lower [[employment-to-population ratio|unemployment rate]], greater household mobility and higher rates of [[participation (decision making)|political participation]].<ref>Weisbrod, Burton, 1962. External Benefits of Public Education, Princeton University{{page needed|date=April 2019}}</ref>
* An individual buying a product that is interconnected in a network (e.g., a [[smartphone]]). This will increase the usefulness of such phones to other people who have a video cellphone. When each new user of a product increases the value of the same product owned by others, the phenomenon is called a network externality or a [[network effect]].  Network externalities often have "[[:wikt:tipping point|tipping points]]" where, suddenly, the product reaches general acceptance and near-universal usage.
* In an area that does not have a [[public sector|public]] [[fire department]], homeowners who purchase [[private sector|private]] fire protection services provide a positive externality to neighboring properties, which are less at risk of the protected neighbor's fire spreading to their (unprotected) house.

Collective solutions or [[public policy|public policies]] are implemented to [[regulation|regulate]] activities with positive or negative externalities.

===Positional===
The sociological basis of Positional externalities is rooted in the theories of [[conspicuous consumption]] and [[Positional good|positional goods]].<ref>{{Cite journal |last1=Alesina |first1=Alberto |last2=Hausmann |first2=Ricardo |last3=Hommes |first3=Rudolf |last4=Stein |first4=Ernesto |date=August 1999 |title=Budget institutions and fiscal performance in Latin America |url=https://linkinghub.elsevier.com/retrieve/pii/S0304387899000127 |journal=Journal of Development Economics |language=en |volume=59 |issue=2 |pages=253–273 |doi=10.1016/S0304-3878(99)00012-7|hdl=10419/87844 |hdl-access=free }}</ref>

[[File:2012 Derby hats 4.jpg|thumb|right|200px|At the [[Kentucky Derby]], a major horse racing competition, some audience members wear expensive hats to display their wealth and status.]]
Conspicuous consumption (originally articulated by [[Thorstein Veblen|Veblen]], 1899) refers to the consumption of goods or services primarily for the purpose of displaying social status or wealth. In simpler terms, individuals engange in conspicuous consumption to signal their economic standing or to gain social recognition.<ref>{{Cite book |last=Veblen |first=Thorstein |title=The theory of the leisure class |date=1998 |publisher=Prometheus Books |isbn=978-1-57392-219-7 |series=Great minds series |location=New York}}</ref> Positional goods (introduced by [[Fred Hirsch (economist)|Hirsch]], 1977) are such goods, whose value is heavily contingent upon how they compare to similar goods owned by others. Their desirability is or derived utility is intrinsically tied to their relative scarcity or exclusivity within a particular social context.<ref>{{Cite book |last=Hirsch |first=Fred |title=Social limits to growth |date=1978 |publisher=Routledge & Kegan Paul |isbn=978-0-7100-8610-5 |edition=Repr |series=A twentieth century fund study |location=London}}</ref>

The economic concept of Positional externalities originates from [[James Duesenberry|Duesenberry]]'s [[Relative income hypothesis|Relative Income Hypothesis]]. This hypothesis challenges the conventional microeconomic model, as outlined by the Common Pool Resource (CPR) mechanism, which typically assumes that an individual's utility derived from consuming a particular good or service remains unaffected by other's consumption choices. Instead, Duesenberry posits that individuals gauge the utility of their consumption based on a comparison with other consumption bundles, thus introducing the notion of relative income into economic analysis. Consequently, the consumption of positional goods becomes highly sought after, as it directly impacts one's perceived status relative to others in their social circle.<ref>{{Cite book |last=Duesenberry |first=J.S. |title=Income, saving, and the theory of consumer behavior |publisher=Oxford University Press |year=1967 |location=New York}}</ref>

Example: consider a scenario where individuals within a social group vie for the latest luxury cars. As one member acquires a top-of-the-line vehicle, others may feel compelled to upgrade their own cars to preserve their status within the group. This cycle of competitive consumption can result in inefficient allocation of resources and exacerbate income inequality within society.

The consumption of positional goods engenders negative externalities, wherein the acquisition of such goods by one individual diminishes the utility or value of similar goods held by others within the same reference group. This positional externality, can lead to a cascade of overconsumption, as individuals strive to maintain or improve their relative position through excessive spending.

Positional externalities are related, but not similar to Percuniary externalities.

=== Pecuniary ===
[[Pecuniary externalities]] are those which affect a third party's profit but not their ability to produce or consume. These externalities "occur when new purchases alter the relevant context within which an existing positional good is evaluated."<ref name="FrankPositional">[[Robert H. Frank]], "[http://www.brookings.edu/gs/events/externalities.pdf Are Positional Externalities Different from Other Externalities] {{webarchive|url=https://web.archive.org/web/20121221184110/http://www.brookings.edu/gs/events/externalities.pdf |date=2012-12-21 }}? " (draft for presentation for ''Why Inequality Matters: Lessons for Policy from the Economics of Happiness'', [[Brookings Institution]], [[Washington, D.C.]], June 4–5, 2003).</ref> [[Robert H. Frank]] gives the following example:
:if some job candidates begin wearing expensive custom-tailored suits, a side effect of their action is that other candidates become less likely to make favorable impressions on interviewers. From any individual job seeker's point of view, the best response might be to match the higher expenditures of others, lest her chances of landing the job fall.  But this outcome may be inefficient since when all spend more, each candidate's probability of success remains unchanged.  All may agree that some form of collective restraint on expenditure would be useful."<ref name="FrankPositional"/>

Frank notes that treating positional externalities like other externalities might lead to "intrusive economic and social regulation."<ref name="FrankPositional"/> He argues, however, that less intrusive and more efficient means of "limiting the costs of [[expenditure cascades]]"—i.e., the hypothesized increase in spending of middle-income families beyond their means "because of indirect effects associated with increased spending by top earners"—exist; one such method is the [[personal income tax]].<ref name="FrankPositional"/>

The effect that rising demand has on prices in marketplaces with intense competition is a typical illustration of pecuniary externalities. Prices rise in response to shifts in consumer preferences or income levels, which raise demand for a product and benefit suppliers by increasing sales and profits. But other customers who now have to pay more for identical goods might also suffer from this price hike. As a result, consumers who were not involved in the initial transaction suffer a monetary externality in the form of diminished buying power, while producers profit from increased prices. Furthermore, markets with economies of scale or network effects may experience pecuniary externalities. For example, when it comes to network products, like social media platforms or communication networks, the more people use the technology or engage in it, the more valuable the product becomes. Consequently, early adopters could gain financially from positive pecuniary externalities such as enhanced network effects or greater resale prices of related products or services. As a conclusion, pecuniary&nbsp;externalities draw attention to the intricate relationships that exist between market players and the effects that market transactions have on distribution. Comprehending pecuniary externalities is essential for assessing market results and formulating policies that advance economic efficiency and equality, even if they might not have the same direct impact on welfare or resource allocation as traditional externalities.<ref name="Microeconomics"/>

===Inframarginal===
The concept of inframarginal externalities was introduced by James Buchanan and Craig Stubblebine in 1962.<ref>{{Citation |last1=Liebowitz|first1=S.J. |last2=Margolis|first2=Stephen E. |title=Network Externality: An Uncommon Tragedy |work=Journal of Economic Perspectives |pages=133–150}}</ref> Inframarginal externalities differ from other externalities in that there is no benefit or loss to the marginal consumer. At the relevant margin to the market, the externality does not affect the consumer and does not cause a market inefficiency. The externality only affects at the inframarginal range outside where the market clears. These types of externalities do not cause inefficient allocation of resources and do not require policy action.

===Technological===
Technological externalities directly affect a firm's production and therefore, indirectly influence an individual's consumption; and the overall impact of society; for example [[Open-source software]] or [[free software]] development by corporations.

These externalities occur when technology spillovers from the acts of one economic agent impact the production or consumption potential of another agency. Depending on their nature, these spillovers may produce positive or negative externalities. The creation of new technologies that help people in ways that go beyond the original inventor is one instance of positive technical externalities. Let us examine the instance of research and development (R&D) inside the pharmaceutical sector. In addition to possible financial gain, a pharmaceutical company's R&D investment in the creation of a new medicine helps society in other ways. Better health outcomes, higher productivity, and lower healthcare expenses for both people and society at large might result from the new medication. Furthermore, the information created via research and development frequently spreads to&nbsp;other businesses and sectors, promoting additional innovation and economic expansion. For example, biotechnology advances could have uses in agriculture, environmental cleanup, or renewable energy, not just in the pharmaceutical industry. However, technical externalities can also take the form of detrimental spillovers that cost society money. Pollution from industrial manufacturing processes is a prime example. Businesses might not be entirely responsible for the expenses of environmental deterioration if they release toxins into the air or rivers as a result of their production processes. Rather, these expenses are shifted to society in the form of decreased quality of life for impacted populations, harm to the environment, and health risks. In addition, workers in some industries may experience job displacement and unemployment as a result of disruptive developments in labor markets brought about by technological improvements. For instance, individuals with outdated skills may lose their jobs as a result of the automation of manufacturing processes through robots and artificial intelligence, causing social and economic unrest in the affected areas.<ref name="Mankiw"/>