What Does Positive Spillover Even Mean?

I settled with 'Positive Spillover' obviously.  'Spillover' is the layman's term for what economists call an externality.  An externality exists when a third party, one not involved in a market transaction, realizes some benefit (positive extenality) or incurs some cost (negative externality).  Some cost or benefit 'spills over' from the market transaction.

Typically when you hear 'externality' it is assumed to be negative.  Pollution in all forms - air, water, noise - are examples of negative externalities.  A firm makes some product and releases the by-product of the process, let's call it crud, into the stream.  The crud kills the trout.  The fishing lodge downstream suffers a cost, no trout = no fishing = no business (that the trout die is only consequential to the extent that humans suffer a loss).



Spillovers are ubiquitous, often hard to quantify, and poorly understood.  They imply a need for policy (aka intervention in the marketplace) thereby they provide great launch sites for discussion, consideration, and debate. In short, they're interesting.

Unfortunately they are, in my experience, under emphasized in college econ classes.  Why?  Before you can consider where markets fail you have to understood how they work.   The first step then is to appreciate how markets work and why they're beneficial - they tend to yield efficient outcomes.  Many college Republicans and Libertarians are those who understand and embrace well the first step but don't quite get the second.

Theoretically those who produce negative spillovers should be compelled to pay while those who produce positive spillovers should be compensated.  Practically that just can't happen in the vast majority of cases.  Planting flowers in my front yard enhances my home.  It benefits me the homeowner but it does so by making it more attractive for others.  I can't plant flowers that only I can see and wouldn't want to if I could.  My neighbors and passers-by benefit when they see the flowers yet they'll not compensate me for this benefit (another, a buyer, might which explains the whole 'real estate staging' business).

Is there a market where there are no spillovers?  Our behavior - our labor, consumption decisions and recreation - has an impact on our fellowman.  That morning walk you take helps you to be pleasant to your co-workers, your family, and strangers.  A private affair, you, your dog, and the trail you frequent, has a positive spillover.

Just so my hope is that my reflections here, essentially a private affair that just happens to be available on the all powerful World Wide Web, bring you some small benefit.  Understand of course that even if you disagree with me or get irritated there is some potential benefit provided you allow it to further your own thinking.