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An externality affects someone without them agreeing to it. It can be positive or negative. Most externalities are small but can make a significant impact over time. Understanding the types of externalities and the consequences they have can help us improve our decision making.
One family member leaves their dirty dishes in the sink. They get the benefit of using the plate. Someone else bears the cost of washing it later.
They can occur during the production or consumption of a service or goods. Calling something a negative externality can be a way of avoiding responsibility.
If a factory pollutes nearby water supplies, it causes harm without added costs to the factory. The costs to society are high and are not reflected in the price of whatever the factory produces. Even if pollution is taxed, the harmful effects still remain.
A positive externality imposes an unexpected benefit on a third party. The producer doesn't agree to this, nor do they receive a 'reward' for it.
They are a form of second-order effects. They arise when our decisions change the context of future perception or value.
A person decides to stay an hour after work, but the person still completes the usual amount of work. Co-workers might also stay an hour later. Now the same job takes an hour longer to complete, and anyone who leaves the standard time is perceived as lazy. It is a lose-lose situation.
Status symbols like diamonds, Lamborghinis, tailor-made suits lose their value if they become cheaper or if too many people own them. They derive their value only in comparison to the average of the group to whom the consumer compares.
The same is true when we change our attitudes.
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It is a simple, symbolic practice that helps them feel ownership and autonomy for their work and their time.
You’re saying, “You tell me what’s important,” and of course you can coach and guide them to help refine over time what’s important.