Routledge Dictionary of Economics, Second Edition
The benefit or cost to society or another person of a private action (e.g.
production or consumption); a third-party effect. Since PIGOU’S discussion of the distinction between SOCIAL AND PRIVATE COST, it has been a central concept of WELFARE ECONOMICS. ‘Internalizing an externality’, in the case of an external cost, can be achieved by a government levying taxes equal to the difference between a private cost and a social cost.
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