By-Products
When a person tries to achieve his goals, side-effects or
by-products sometimes occur that affect others. In these
cases, the person making decisions either may not know about
the side-effects or may not care enough about them to let
them influence his decisions. An important example of a
side-effect is the production of pollution.
Pollution is not an intended product, but it is one
output in a production (or consumption) process. Consider,
for example, the production of electricity from coal. Among
the outputs of this production process are electricity,
heat, carbon dioxide, and ash. The type of coal used will
influence the outputs--some coal is high in sulfur, which
will emerge in some form as an output. The electricity is
the desired output, and the others are unwanted outputs that
cannot be totally avoided. If one of the outputs is
considered undesirable, it can sometimes be controlled, but
this process will create other by-products.
Pollution refers to by-products that are considered
undesirable to others. If no one considers the waste heat
that is a by-product of the production of electricity a
problem, that waste heat will not be called pollution. When
it is considered a problem, the government may force the
electric utility to use resources to deal with it by
building cooling towers, for example. A cooling tower does
not, of course, reduce the total waste heat. It only
transfers some of it from the water to the air where it is
considered to be less undesirable.
By-products do not have to be harmful; they can be
helpful or neutral. An important instance of a non-harmful
by-product is the creation of money. Money in modern
economies arises as an unintended result of banks making
loans. This aspect of banking is important to economists
because they have evidence that changes in the amount of
money influences the amount of inflation and unemployment
that a society has.
Economists have a special name for these byproducts or
spillover effects: externalities. As the name
suggests, an externality exists when either an unintended
cost is imposed or an unintended benefit is given in the
process of producing or consuming. Because the realization
that externalities are everywhere has greatly influenced
economic thinking, we will examine them in several places
later in these pages. We finish this set of pages with a
look at one important case of the by-product phenomenon, the
problem of the commons.
Copyright
Robert Schenk
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