Neal's Workshop

The other day while lounging around the house with my wife, something suddenly occurred to me. It was an epiphany concocted in the bowels of my spirit: passing gas, yes farting, is a negative externality.

Negative externalities result when an entity receives the benefits of an acivity while not bearing all of the costs. Pollution is one of the most common examples used to explain negative externalities. Imagine a business that burns coal to make energy. The cost to produce the energy is the cost of the coal, labor, infrastructure, equipment and pollution. The first four costs are directly incurred by the business. The last, however, is exacted on the surrounding population. As a result of this disconnect between cost and benefit, the energy producer will create more energy than would be economically efficient.

Just so you know, positive externalities also exist. This is where the producer of a good pays all of the costs but does not receive all of the benefits. As a result of such a disconnect, an economically inefficient amount of the good is produced. A good example of a positive externality is planting flowers. Your neighbors benefit from the betterment of your property while not paying for it.

Back to the original topic of this post. Passing gas is a negative externality. I reap all of the benefits while paying the majority of the cost (I'll leave you to figure out what exactly those benefits/costs are). However, my neighbors also pay part of the price of my human air pollution.

You may believe this post crass, but understanding how farting is a negative externality can help explain human behavior.

For example, if I let one rip near my wife, I'm likely to bear more of the external cost of breaking wind: she's going to be pissed! Thus, I'm less prone to engage in such behavior. An example we can all relate to would be where you are on an elevator with one other person. If you cut the cheese (assuming you make no sound), it doesn't matter: not only are you going to know it was you, they're going to know it was you, toot. The highly awkward nature of this hypothetical situation results in a specific social cost to the offender. And as a result, you're less likely to pass gas in such a situation.

Contrast this one-on-one example with a packed elevator. Assuming you can slide one out silently, no one will ever know (for sure) it was you. Thus, you're much more likely to poot.

That's negative externalities in a nutshell. Gross but enlightening. The question that remains is in what ways can the free market control negative externalities and thereby eliminate market inefficiencies?

If we can figure out a solution, the world would be a better smelling place.