• Ipek Sanri

Externalities and a deadly end

We live in a world in which massive production and consumption take place. The environment is suffering from our actions, in turn, people are suffering. According to World Bank, pollution is the most hazardous environmental issue since it is responsible for many diseases and premature death. “Pollution of air, land, and water cause more than 9 million premature deaths (16% of all deaths worldwide)”. Fortunately, some people have started to pay attention to environmental issues. For example, in economics, externalities are the basic concept to understand and analyze these issues.

When a person’s or a firm’s activity directly affects the welfare of others in a way that is outside the market mechanism, that effect is called an externality. In other words, when there is an unintended result of one’s action, this result is an externality. An externality can be positive or negative and can originate from either the production or consumption of a good or service. Vaccines are a great example of a positive externality because by getting a vaccine a person protects herself/himself from disease and s/he decreases the possibility of transmitting the disease. On the other hand, pollution is a negative externality. Every type of pollution has some negative effects on people and the environment. However, in both cases, externalities cause inefficiency of resource allocation. Because the price equilibrium does not reflect the real cost or benefit of the product or the service. There are some methods to overcome this inefficiency: taxation (Pigouvian tax), subsidizing, cap and trade systems, command and control regulations, emissions fees, and so on. However, these methods have some administrative problems, thus they are not adequate for solving the efficiency problem. Besides these, the World Bank implement some projects. Between 2004 and 2019, the World Bank committed an average of US$3.26 billion per year to address the issues such as waste management, water pollution, air quality management, management of chemicals and toxins, and so on. Even the Coronavirus helps us to decrease pollution. Due to Coronavirus, businesses have stopped, people have stayed at home for months. The production all over the world has decreased. Thus, the pollution decreased too. For example, according to Nasa, nitrogen dioxide levels across eastern and central China have been 10-30% lower than normal (Watts & Kommenda, 2020). Yet, the world is not going better.

In Turkey, the Marmara Sea is suffering from negative externalities. Recently, the sea surface is covered by mucilage (or sea snot), due to overpollution. For the first time in history, a sea is dead. Sea snot blocks the oxygen to reach down the sea, thus many creatures are threatened. The Turkish environment minister has started to clean up the mucilage, but it is not a permanent solution. What needs to be done is to raise awareness about the environment. And to keep in mind that these problems do not affect only animals. It also affects us. We need to be careful about the externalities of our actions.

The sea of Marma, photograph: Anadolu Agency/Getty Images


Rosen, H. S., & Gayer, T. (2008). Public Finance. McGraw-Hill.

Watts, J., & Kommenda, N. (2020).

Coronavirus pandemic leading to huge drop in air pollution. The Guardian.