Externality in economics

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An externality is a cost or benefit caused by a producer that is not financially incurred or received by that producer. An externality can be both positive or negative and can stem from either the production or consumption of a good or service. The costs and benefits can be both private—to an individual or an organization—or social, meaning it can affect society as a whole. - Investopedia

Externalities often occur when the production or consumption of a product or service's private price equilibrium cannot reflect the true costs or benefits of that product or service for society as a whole.

This causes the externality competitive equilibrium to not adhere to the condition of Pareto optimality. Thus, since resources can be better allocated, externalities are an example of market failure. - Wikipedia

If I buy a new lock, burglars will just rob the house next door. My lock generated a cost for someone else, which could be framed as a negative externality. I wonder if opportunity costs could also be framed as externalities, or missed revenue.

Then, we could wonder whether open hardware generates a negative externality on the funding that supported the design of it. By not agreeing on licenses, there is revenue loss from the university/funding body perspective, not necessarily from society as a whole. But what if choosing the wrong license blocks the business development at all?


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