What are Externalities?
Arthur Cecil Pigou (1877-1959) developed earlier work by fellow English economists HENRY SIDGWICK (1838-1900) and Alfred Marshall (1842-1924) into an important feature of modern economic theory.
Economic activity generates costs and benefits, some of which are not incurred/enjoyed by the person performing the activity.
When, for example, a company pollutes the environment, it may enjoy efficient production yet society is faced with the cost of the pollution. (Acid rain is a large-scale example of this.)
Similarly, a firm that trains its workers well will lose some of this benefit when the worker moves to another firm, in which case society as a whole benefits.
Written by: Jayashree Pakhare
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Tagged as Alfred Marshall, Cecil Pigou, Henry Sidgwick + Categorized as Other, About economy, Economy articles