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In economics, an externality refers to a benefit or cost that results from an economic activity and affects a third party which has not chosen to incur the cost or derive the benefit. According to Sunderasan (2012), an externality is a spill-over effect arising from the production and/or consumption of particular goods and services for which no appropriate compensation can be made. Thus, externalities are losses or gains in the welfare of one party resulting from an activity of another party, without there being any compensation for the losing party (Sunderasan, 2012). Benefits derived from such economic activities are called positive externalities or external economies while the costs incurred because of an activity are referred to as negative externalities or external diseconomies. An example of a positive externality is an increase in the value of land and houses in a neighborhood adjacent to a newly constructed highway in a town. On the other hand, an example of a negative externality is environmental pollution such as water, air and land pollution caused by manufacturing firms in a given area. These types of environmental pollution may not be caused intentionally by the manufacturing firms and have adverse affects on the safety and health of members of communities in that particular region.
In my view, the study of externalities by economists has been far-reaching and extensive in the recent past due to an increased concern about the relationship between the economy and the society as well as between economic activities and the environment.
Selected Negative Externality
An example of a negative externality that has occurred in the real life in the recent past is pollution of the environment by Unilever Company in Russia. According to Zisa (2011), Unilever was accused of double standards and shameful negligence of its Russian subsidiary, Kalina, which led to extensive environmental pollution in the country. Various operational and manufacturing activities of the Russian subsidiary have been causing environmental pollution in Russia hence negatively impacting the wellbeing of the society. For instance, Kalina was accused of dumping several tones of toxic mercury waste into water bodies (Zisa, 2011; Harris, 2013). Although Unilever states that its policy is to exercise concern for the environment wherever it operates, the actions of the Russian subsidiary have indicated that the company is not able to protect the environment appropriately.
Generation of the Externality
Environmental pollution by Unilever in Russia through its subsidiary Kalina is generated through operational activities and manufacturing processes of the company. First and foremost, the company causes air pollution by releasing smoke into the air. Secondly, it causes water pollution by discharging untreated or poorly treated industrial effluents into water bodies such as rivers and lakes in the country. This has led to massive pollution of water hence rendering it unsuitable for use for domestic and farming purposes. The water pollution has also led to an increase in waterborne diseases hence affecting the health of people of Russia. It has also led to the death of fish and other aquatic animals living in the rivers and lakes hence leading to decline in aquatic life. Thirdly, the subsidiary has been causing noise pollution, which negatively affects the life of people living around its manufacturing plants. Noise pollution has resulted in a decline in hearing abilities among people living in neighborhoods of Unilevers manufacturing plants in Russia. Most employees have also suffered from hearing loss due to noise pollution.
Reducing the Externality
This external diseconomy of environmental pollution caused by Unilever Company in Russia can be reduced by development and implementation of appropriate mitigation measures to help reduce the pollution. For instance, water pollution caused by discharging effluents into water bodies such as rivers and lakes can be reduced by ensuring that the effluents are treated properly before their discharge. Similarly, air pollution caused by emitting smoke into the atmosphere can be reduced by ensuring that emissions are well treated and disinfected. On the other hand, noise pollution caused by Unilever can be reduced by compelling the company to acquire new machinery and production equipment that produce less sound or noise during manufacturing processes. Moreover, workers of Unilever should be given auditory devices to protect them from hearing loss as a result of increased exposure to noise at their workplaces.
Personal Reflection about Environmental Pollution
For my part, environmental pollution is evil and very costly to the society hence should be prevented. Appropriate measures should be developed by manufacturing firms and other organizations that are likely to cause environmental pollution in order to ensure that they minimize or eliminate possible causes of environmental pollution from their operational and manufacturing activities. In addition, regulatory authorities such as the local, state and federal governments should formulate environmental conservation laws and policies that would help in preventing pollution of the environment by organizations as well as individuals. For example, laws requiring all manufacturing firms to treat their industrial effluents properly before discharging them into water bodies should be developed, implemented and enforced fully. There should be an increased awareness of environmental pollution among members of the community. This would enable them to gain deeper understanding of this phenomenon, its sources or causes and effects on the society and of how to prevent and manage it. As a consequence, environmental pollution would be greatly reduced.