# Externality

*Macro & Economy — Finicade finance glossary*

An externality is a cost or benefit imposed on someone who wasn't party to the transaction — factory pollution, vaccination, a neighbour's renovation. Markets systematically overproduce negative externalities and underproduce positive ones, because the price doesn't include them. The standard remedies are taxing the harm at its social cost, subsidising the benefit, or creating a tradable property right, which is what carbon markets attempt.

**Also known as:** negative externality, spillover effect, Pigouvian tax

**Related terms:** [Public Good](https://finicade.com/glossary/public-good), [Carbon Price](https://finicade.com/glossary/carbon-price), [ESG](https://finicade.com/glossary/esg), [Supply and Demand](https://finicade.com/glossary/supply-and-demand), [Moral Hazard](https://finicade.com/glossary/moral-hazard)

Source: https://finicade.com/glossary/externality