Externality
Etymology
From external, Latin externus, "outward, on the outside." The plain idea is simply something lying outside the thing being considered. Economics sharpened it into a precise term: an effect sitting outside the price paid by the people directly involved. Pollution is the classic negative externality; a neighbor’s beautiful garden is a positive one.
noun · /ek-stur-NAL-ih-tee/
A cost or benefit created by an activity that falls on people who were not part of the transaction.
What it names
Why individually rational choices can add up to collectively bad outcomes — the consequences that never show up in anyone’s price or decision.
Example
The factory was profitable partly because it treated the river’s pollution as an externality — a cost paid by everyone downstream.
Related idea
Tragedy of the commons is what happens when negative externalities pile up on a shared resource.