Externalities

A cost not transferred through prices and therefore not accounted for. Double Entry defines it plainly — “in economics an externality is a cost, but one not transferred through prices and therefore not accounted for. The pollution of waterways or the atmosphere by factories, for example, is an externality” — and uses the concept as the hinge of its indictment of national accounting. The book notes that even statistical agencies concede the valuation of environmental damage is “an undeveloped field of research,” with “externalities” a word that “veils a multitude of sins.” It connects this to ecological debt (one study puts the bill for the earth’s degraded ecosystems at US$47 trillion) and to the failures of GDP, which counts pollution and the destruction of forests as income while ignoring nature’s unpriced services — carbon absorption, coastal defense, pollution filtering. The thread ties directly to Climate Change: the costs traditional and national accounts fail to record.

Context: Externalities are a foundational concept in welfare economics, dating to A.C. Pigou — costs or benefits imposed on third parties not reflected in market prices. Negative externalities like pollution are a standard justification for taxation (Pigovian taxes), regulation, or cap-and-trade.

Where this appears

• Double Entry — defines externalities and uses unpriced environmental costs to indict GDP and national accounting.