Saturday, October 09, 2010

Externalities: Not Costs But Benefits

The economists define an externality as something which isn't captured in the price of the good or service. I usually notice externalities as costs: the pollution which is a by-product of the internal combustion engine, for example.  But there can also be benefits.  In the case of BT corn (corn genetically modified to produce a natural toxin which kills corn borers), farmers who buy and use BT corn seed benefit their neighbors who don't.  Turns out it's like vaccinations--vaccinate enough susceptible people in a group, and the unvaccinated benefit because the disease can't establish itself.

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