What do you understand about negative externality? Negative externality is the amount of harm or social cost resulting from the production or consumption of a product or service, but which is not reflected in the prices of the product or service.
For example: costs related to water, air or soil pollution caused by the production of products and services, but not reflected in their prices.
The negative externality measure depends on several factors, such as the nature of the product or service, location and applicable regulations. Some examples are: Particle pollution can be measured through measurements of particles in air, water or soil, while noise pollution can be measured through decibel measurements.
In addition externality measure A negative impact can also be carried out through environmental impact and risk assessment studies, which assess the possible negative effects of the production and consumption of a product or service.
In this content you will see what externality negativity is, what are the main ways to reduce it and much more. Keep reading to check it out!
What this article covers:
What is a negative externality?
A negative externality is a harmful effect imposed on third parties who did not choose to carry out the activity causing the negative effects. It is the result of an economic action that does not consider the resulting social costs, giving the economic agent the benefit while the costs are imposed on the other party.
For example, the pollutant that emits toxic gases into the air may impose a negative externality on other residents of the area, who had no part in creating this factor.
What are the main examples of negative externalities?
With an understanding of what negative externalities are, check out the main examples below:
- Air and water pollution;
- traffic noise;
- Greenhouse gas emissions;
- Loss of biodiversity;
- Contamination and depletion of water resources;
- Impaired public health;
- Adverse effects on human health caused by chemical substances;
- Decreased quality of life.
In addition, in this content you will also observe how it is possible to measure the impact of externalities. See how below.
How is it possible to measure the impact of negative externalities?
The impact of negative externalities can be measured by assessing the changes they produce in social, economic and environmental outcomes.
In addition, it is also possible to measure the impact of negative externalities through their effects on production costs, employment levels, environmental quality, public health and other factors.
The use of tools such as cost-benefit analyzes and social, economic and environmental impact analyzes can also help to measure the implication of negative externalities.
What are the main ways to reduce negative externalities?
Bearing in mind what they are and how to measure negative externalities, it is necessary to think of ways to reduce this process, so check out the main ways:
- Taxes and Fees: Raising taxes and fees on activity that generates negative externalities can discourage undesirable behavior and help fund the development of less harmful alternatives.
- Regulation: Establishing regulations and quality standards for activities that generate negative externalities can help to limit their harmful effects;
- Education: Educating people about negative externalities and encouraging responsible behavior can help reduce their impact;
- Subsidies: Offer subsidies to companies and industries that adopt less harmful practices or invest in cleaner technologies;
- Charging: Establishing a charging system for the use of natural resources, such as water or energy, can help encourage responsible behavior and reduce its negative effects.
Thus, we see that in addition to the options that can be developed by the State, there are also those, such as education or awareness that can come from anyone, as long as they have mastery of the subject to explain and show the factors and impacts of negative externalities.
Why can negative externalities have such a significant impact on economies?
Negative externalities can have a significant impact on economies because they affect a country’s cost of living, quality of life and competitiveness.
For example, air pollution can result in higher health care costs for the population, which affects economic growth.
Furthermore, negative externalities can lead to imbalances and disadvantages in the market, since additional costs are not incorporated into the final prices of products. As a result, companies do not incur the additional costs, which leads to lower economic growth.