Question

Explain the concept of spillovers and their impact on resources allocation, and the corrective actions needed. in 2019 Articles from date 1/29/19 and up

Answer 1

In economics, a spillover is an economic event that occurs in an apparently unrelated context because of something else. Economic activity externalities, for example, are non-monetary spillover effects on non-participants. A growing plant's odors are detrimental spillover effects on its neighbours; a homeowner's flower garden's beauty is a positive spillover effect on neighbours.

Pollution is a frequently used example of spillover costs. Say that a large manufacturer produces and sells widgets, but its factories belch unhealthy fumes that nearby residents have to breathe. The nearby residents neither produced nor bought the widgets, but they're paying for them nevertheless in reduced air quality and increased health problems. These negative third-party consequences of widget production are the "spillover costs." Spillover costs can also apply to the actions of individuals, such as when a smoker exposes nonsmokers to secondhand smoke at a restaurant. Nearby diners suffer annoyance and potential health risks from the smoker's actions, though they themselves are nonsmokers.

The economy works inefficiently when there are spillover costs, as neither the manufacturer nor the buyer of a particular product is paying the full cost. The burden of producing or selling a certain commodity is now being borne not only by the owners, but also by third parties. Because manufacturers and consumers do not pay the full amount for a particular product, that product tends to overproduce, resulting in market imbalance, a higher level of production or consumption than society really wants.

The government should address spillover costs that affect society as a whole and reach a critical mass. In the form of taxes or other costs that the producer or customer may pay, the unpaid expense of a particular product may be restored. The government may pass laws to counter the negative spillover effect directly, such as banning smoking in public places or forcing a corporation to turn to non-polluting production processes. Some have suggested that spillover costs are often the product of poorly defined property rights, and that interested parties would seek a private settlement if property rights were clearly defined.