Externality
Externality
Externality (/ɛkˌstɜːrnˈælɪti/) is a term used in Economics and Healthcare to describe a cost or benefit that affects a party who did not choose to incur that cost or benefit.
Etymology
The term "externality" is derived from the concept of an "external effect," which is an effect that is not reflected in market prices. It was first used in this context by the economist Arthur Cecil Pigou in the early 20th century.
Definition
In the context of healthcare, an externality can refer to the indirect impact of a product or service on the health and well-being of the population. For example, the spread of a communicable disease can be considered an externality because it affects individuals who did not choose to be exposed to the disease.
Types of Externalities
There are two main types of externalities: positive externalities and negative externalities.
- Positive externality: This occurs when the consumption or production of a good or service benefits a third party. An example in healthcare could be vaccination, where the vaccinated individual not only protects themselves but also reduces the risk of disease transmission to others.
- Negative externality: This occurs when the consumption or production of a good or service harms a third party. An example in healthcare could be smoking, where the smoker harms not only themselves but also those around them through second-hand smoke.
Related Terms
External links
- Medical encyclopedia article on Externality
- Wikipedia's article - Externality
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