Externalities
An externality is defined as “any value impact (positive or negative) resulting from any action (whether related to production or consumption) that affects someone who did not fully consent to it through participation in voluntary exchange.” The label externality problem is reserved for those situations in which the good conveying the valued impact on non-consenting parties is the byproduct of either the production or consumption of some good.
Some examples of negative externalities cited in the chapter include the air and water pollution generated by firms in their production activities, the cigarette smoke that non-smokers encounter in public places, and the unsightliness generated by a dilapidated house in a well-kept neighborhood. Persons who suffer these externalities may place different values on them.