Externality and the Roles of the Stakeholders Involved

Externalities
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Externalities
An externality is describes as an external factor which affects a party which can be positive or negative (Henderson, 1997). The factor is positive when the concerned party incurs a benefit and considered negative when the concerned party incurs cost. An externality is not choice and is caused by another party. Externality occurs commonly in a scenario where certain properties or assets in the economy has not been allocated to someone specific (Henderson, 1997). In this case one party which uses the asset may decide to cause harm to others by means that are ethically not good. For instance, common public resources such as air, oceans and roads have no one in specific who owns them.
Example of three externality in the world include:
1 A road constructed by an industry in order to transport its products to the market and supplies from the supply points.
2 A child developing health complications due to loud noise from a neighbor who plays loud music.
3 A firm which has carbon and other pollutants emissions to the environment.
An externality do exist if one party is hurt by the practices of another party in whom he has no control over.
In the first scenario, the company constructs the road with the intention of easing their transport of goods to the market and also making supply materials from the suppliers. This is a positive externality to the society. The road which is constructed with the aim to fulfill the company need also helps the people in the society. People in the society have not played any role in construction of the road yet they take advantage of it. Due to construction of the road, people in the society can thus enjoy the utility and their products can be transported at ease. This is a benefit to the society. The common utility in this case is the road which should be used by all parties.
In the second scenario, a child develops health complications because his neighbor has loud music. This loud music bring hearing complications thereby making the parent of the child to make an extra cost during treatment of the child. The neighbor and the child living in the next house share a common utility which is the air. This utility have no one who can claim its ownership hence the reason he is operating with loud music. This is beyond the control of the parent, this is an illustration of a negative eternality which causes harm and brings additional cost to the parent.
In the third scenario, the company being in an environment with people, pr...