A negative externality or spillover cost occurs when

4.2.2 The Specification of the Technology

Whenever spillover effects from other industries are present, the estimation of cost reduction is possibly flawed. This is often problematic when technological concepts originate in other industries [e.g., gas turbine having its roots in jet engines]. Also, the design of a technology might change in the course of product diversification and the establishment of a technology in new [e.g., distributed] applications.

The attribution of learning and accumulating experience also depends on which technology one actually examines. For example, the outcome when the experience collected with solar photovoltaic power generation is aggregated over all semiconductor materials that have been used for the purpose is drastically different from that when just the currently prevalent material is included in the experience measure. This phenomenon is highly technology specific, and no general recommendation can be given.

Related Concepts

Closely related to the concept of a commons is the economist's concept of externalities [sometimes called spillover effects]. An externality is a cost or benefit imposed on others [without compensation] as the result of some economic activity. Externalities can be positive [e.g., a homeowner paints her house to protect it from the weather, and neighbors enjoy the color scheme] or negative [smoke from the homeowner's fireplace chokes her neighbor]. Users of common property resources impose negative externalities by reducing the stock of the resource available to other users. Environmental pollution is another common example of a negative externality. In this case, the quality of a resource, rather than the quantity, is reduced by pollution.

Another related economic concept is that of social cost. When a negative externality occurs, the agent that causes the externality incurs a personal cost [his or her private cost] that is less than the total social cost of the activity.

Yet another notion is that of free riders. When the users of a common resource agree to limit their individual impacts, others – the free riders – may continue to exploit the resource. Examples include poachers who illegally slaughter wildlife in protected areas, or nations that fail to ratify or honor international agreements. The dilemma here is that the greater the success in managing the commons, the greater is its attraction to free riders. The problem of free riders explains the dual difficulties inherent in community control of the commons: exclusion of outsiders, and control of cheating by insiders. The failed experiments of national communism serve as strong warnings against undue optimism in these situations.

A basic theoretical prediction of economics, that competitive equilibria are Pareto efficient, is valid only in the absence of externalities. How to remedy the effects of negative externalities is the subject of welfare economics. The immense literature in this field cannot be succinctly summarized, but it can be stated that no fully satisfactory solution to the tragedy of the commons [negative externalities, if you prefer] has been discovered, and it may be that none exists. If not, the commons dilemma promises to become ever more serious as the world's population continues to grow and exert increasing pressures on the biological systems that are essential to our very survival.

Coexistence Due to Spillover

If a species can persist in one local community, then with emigration, it can also be found in other nearby communities where otherwise it would be excluded. To model this “spillover” effect, assume that the species when rare declines at rate r