In every economic transaction there is a willing buyer and a willing seller. and they agree on a price that benefits both. But there are spillover effects in many economic transactions—costs and/or benefits that are transferred to third parties. Friedman called these spillovers "neighborhood effects." Today, most economists call them "externalities.

At their most basic, externalities don't have to involve buying and selling. If you smoke in a restaurant instead of stepping outside it's easier for you, but it's worse for everybody else. That's an externality. If you throw your McDonald's bag out the car window it makes life easier for you, but it's worse for everybody else. That's an externality, too. If a pretty girl walks by in a low-cut top she's probably a little colder, but the added happiness of the boys in the neighborhood is a positive externality. For some reason, economists seem to love that example.

Now let's add in money If your power company sells you coal-fired electricity at three cents per kilowatt-hour, that's a good deal. But if it does it by burning cheap, dirty coal and doesn't have a smoke scrubber. the soot that's dumped on the neighboring town is a negative externality. The people in that town are subsidizing your cheap power by paying the cost in terms of property damage, extra cleaning, poor health, aggravation. And the next generation is also subsidizing your price break if the utility isn't removing the carbon dioxide from its emissions. In terms of freedom, you are forcing a tyranny on the commons because the third party (in this case, everyone else) is deprived of having a choice about whether or not to partake in the transaction that gives you cheap power. It's not fair or equal freedom.


Examples of externalities, public side-effects, good and bad, of our personal actions that impact the commons.

Folksonomies: economics commons tragedy of the commons externalities

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coal-fired electricity:FieldTerminology (0.764494 (neutral:0.000000)), carbon dioxide:FieldTerminology (0.743244 (negative:-0.670381)), Friedman:Person (0.718950 (negative:-0.369088)), McDonald:Company (0.692917 (positive:0.312499))

Externality (0.954362): dbpedia | freebase
Tragedy of the commons (0.850584): dbpedia | freebase | yago
Milton Friedman (0.695673): dbpedia | freebase | opencyc | yago

 Fool Me Twice
Books, Brochures, and Chapters>Book:  Otto , Shawn Lawrence (2011-10-11), Fool Me Twice, Rodale Press, Retrieved on 2013-01-08
  • Source Material [books.google.com]
  • Folksonomies: politics science