Involves

Word

Externality

ek-stur-NAL-ih-tee · noun

A cost or benefit that falls on people outside an activity's transaction and is not fully reflected in its price

Examples

  • Noise from the venue created a negative externality for neighboring households.

  • A beekeeper's activity can create a positive externality when nearby crops benefit from pollination.

Origin

The economic term points to effects external to the decision-maker's own accounting. External does not mean far away or unimportant. The affected person may live next door, and the omitted cost may be central to whether the activity is worthwhile for the community.

How it connects

Externality names an effect that escapes the accounting of the activity producing it.

This word appeared in The cost that leaves the bill, the Involves connection for October 2, 2026, which asked: Who pays when an activity affects people outside the transaction?

Check yourself

Which effect is a negative externality?

Late-night venue noise disturbs residents who did not attend. Exactly. The noise imposes a cost on people outside the transaction.

What the sources establish

  • Externalities are costs or benefits affecting people outside a transaction and not fully included in its private accounting.

Sources