Positive Externality

Some activities help others beyond the people who choose them. Education is a common example: an educated person benefits personally through better job prospects, but society also benefits from a more skilled workforce, more innovation and greater civic participation.

Other examples include vaccination, which reduces the spread of disease to others; research, whose discoveries can be used by many; and well-kept gardens, which make a neighbourhood more pleasant for everyone.

Because the person or business doing the activity does not receive payment for the wider benefits, they tend to do less of it than would be ideal for society. A homeowner may not consider the pleasure their garden gives passers-by when deciding how much to spend on it.

Governments often encourage activities with positive externalities through subsidies, tax credits or direct provision. Public funding for education, research grants and free vaccination programmes are all examples. The aim is to increase the activity to a level closer to what benefits society as a whole.