Difference between revisions of "External effects"

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[[File:ae.png|25px|right|This is a page providing background in a specific field of expertise]]'''External economic effects''' are changes in welfare due to an urban development project with which the owners, exploiters and users are not taking account of during the decision process. Put differently, external effects are benefits and costs which arise when the social or economic activities of one group of people have an impact on another, and when the first group fails to fully account for their impacts<ref>European Commission (1994): Common Market Expert Group, The Economic Cost of Traffic Accidents.COST
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313.</ref>.
   
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== Description ==
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There is no universally accepted definition of '''external effects'''. "The different definitions and interpretations of external costs relate to the principles of welfare economics"<ref name="ftn10"> Source: The European Wind Energy Association (EWEA). Wind Energy; The Facts. [http://www.wind-energy-the-facts.org/en/ http://www.wind-energy-the-facts.org/en/]</ref>. This theory states that economic activities by any party or individual cannot be beneficial if they adversely affect the well-being of a third party or individual (see, for example, Jones 2005)<ref name="ftn10">Ibid.</ref>.
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External costs are related to the principles of welfare economic, and refer to the idea that activities developed by a certain party can adversely affect the well-being of a third party, e.g. the next door neighbors of a nuclear power plant.
   
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By definition, private markets do not include external effects or their costs in their investment projects. It is therefore important to identify the external effects and then to monetise the related external costs, for example, with the help of a [[Social cost-benefit analysis]]. This so-called "internalisation" of external effects has to be achieved by adequate policy measures, such as taxes.
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== Definition ==
  
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External effects are changes in welfare due to an urban development project with which the owners, exploiters and users are not taking account of during the decision process. Put differently, external effects are benefits and costs which arise when the social or economic activities of one group of people have an impact on another, and when the first group fails to fully account for their impacts (European Commission, 1994).
  
   
 
== Types of external effects ==
  
== Types of external effects ==
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Externalities can be classified in two main categories<ref>Ibid.</ref>:
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Externalities can be classified in two main categories:
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[[File:Kivioli chemical plant.JPG|thumb|Kivioli chemical plant]]
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* '''Environmental and human health externalities''': "These can additionally be classified as local, regional or global, referring to climate change caused by emissions of CO<sub>2</sub> or destruction of the ozone layer by emissions of CFCs or SF6" <ref name=EWEA>The European Wind Energy Association (EWEA). Wind Energy; The Facts. Online: http://www.ewea.org/eu-funded-projects/completed-projects/wind-energy-the-facts-ii/</ref>.
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* '''Non-environmental externalities''': "Hidden costs, such as those borne by tax-payers in the form of subsidies, research and development costs, or benefits like employment opportunities, although for the latter it is debatable whether it constitutes an external benefit in the welfare economics sense"<ref name=EWEA></ref>.
   
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External effects can be both a [[primary economic impact|primary]] or a [[secondary economic impact|secondary]] impact.
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* '''Environmental and human health externalities''': "These can additionally be classified as local, regional or global, referring to climate change caused by emissions of CO<sub>2</sub> or destruction of the ozone layer by emissions of CFCs or SF6" <ref>Ibid.</ref>.
 
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* '''Non-environmental externalities''': "Hidden costs, such as those borne by tax-payers in the form of subsidies, research and development costs, or benefits like employment opportunities, although for the latter it is debatable whether it constitutes an external benefit in the welfare economics sense"<ref name="ftn10"></ref>.
  
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External effects can be both a [[belongs to::primary economic impact|primary]] or a [[belongs to::secondary economic impact|secondary]] impact.
  
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== Importance of externalities ==
  
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By definition, private markets do not include external effects or their costs in their investment projects. It is therefore important to identify the external effects and then to monetise the related external costs, for example with the help of a [[can be done by::Social cost-benefit analysis]]. This so-called "internalisation" of external effects has to be achieved by adequate policy measures, such as taxes.
  
   
 
==Related subjects==
  
==Related subjects==
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*[[Economic|Economic main page]]
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* [[belongs to::primary economic impact|Primary economic impact]]
 
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**[[Economic impact]]
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* [[belongs to::secondary economic impact|Secondary economic impact]]
 
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* [[belongs to::Economic impact]]
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*** [[Primary economic impact]]
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*** [[Secondary economic impact]]
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*** External effects
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**[[Economic impact of urban planning]]
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**[[Economic impact of security threats]]
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**[[Economic impact of security measures]]
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**[[The economics of criminal and terrorist behaviour|Economics of criminal and terrorist behaviour]]
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*[[Economic output]]
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*[[Economic tools]]
   
 
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Latest revision as of 00:18, 20 January 2018

This is a page providing background in a specific field of expertise

External economic effects are changes in welfare due to an urban development project with which the owners, exploiters and users are not taking account of during the decision process. Put differently, external effects are benefits and costs which arise when the social or economic activities of one group of people have an impact on another, and when the first group fails to fully account for their impacts[1].

Description

External costs are related to the principles of welfare economic, and refer to the idea that activities developed by a certain party can adversely affect the well-being of a third party, e.g. the next door neighbors of a nuclear power plant.

By definition, private markets do not include external effects or their costs in their investment projects. It is therefore important to identify the external effects and then to monetise the related external costs, for example, with the help of a Social cost-benefit analysis. This so-called "internalisation" of external effects has to be achieved by adequate policy measures, such as taxes.

Types of external effects

Externalities can be classified in two main categories:

Kivioli chemical plant
  • Environmental and human health externalities: "These can additionally be classified as local, regional or global, referring to climate change caused by emissions of CO2 or destruction of the ozone layer by emissions of CFCs or SF6" [2].
  • Non-environmental externalities: "Hidden costs, such as those borne by tax-payers in the form of subsidies, research and development costs, or benefits like employment opportunities, although for the latter it is debatable whether it constitutes an external benefit in the welfare economics sense"[2].

External effects can be both a primary or a secondary impact.

Related subjects

Footnotes and references

  1. ↑ European Commission (1994): Common Market Expert Group, The Economic Cost of Traffic Accidents.COST 313.
  2. ↑ 2.0 2.1 The European Wind Energy Association (EWEA). Wind Energy; The Facts. Online: http://www.ewea.org/eu-funded-projects/completed-projects/wind-energy-the-facts-ii/
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