What are some examples of external benefits?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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There are a number of kinds of economic activities that lead to positive externalities, which are external benefits.  These actions help the society as a whole and have benefits that are not captured by the people who engage in the activities.  Therefore, the benefits are external.  Let us look at a few examples.

If a business designs a new manufacturing process that uses less energy, there will be external benefits.  The price of electricity could conceivably go down if the process is widespread enough.  The amount of pollution would be decreased.  These are things that would help all people, not just the firm that invents the process.

Education is another thing that has external benefits.  If a person goes to college, they are helping people other than themselves.  For example, as college graduates, they will be statistically less likely to commit crimes or to need government assistance.  This reduces the costs they impose on society.  They are also increasing their human capital, which will help the economy as a whole thrive.  They will not capture all of the benefits of these things.  Some of the benefits that come from their actions will spill over and help other people in society.

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