This is a group of problems related to the fact that a certain owner, while performing manipulations with their property, affects the property of others, even if they do not interact with it directly. They might build a house on their land and block a neighbor’s beautiful view or create shade. They might drill a water well, causing the yield in a neighboring well to decrease. They might burn something smelly or simply set up a dump. They might make noise or shine bright lights. Their livestock might enter someone else’s territory and trample something. Their dog might bite a passerby. They might sneeze, and the neighbor might get sick.
Beyond all else, the problem of externalities can be compounded by the problem of fuzzy boundaries. A large house certainly ruins a beautiful view. But what if it is just a pole? A dump smells disgustingly for a hundred meters. But what if it is just a trash can? The noise of a hammer drill prevents sleep, but what if it is just a quiet conversation? A bright light hits directly in the eyes and severely poisons life, but even a dimmed light creates light pollution and prevents one from admiring the starry sky. A dog might not bite anyone, but its barking is still very irritating. Finally, it is one thing when someone sneezes directly in your face, and another when they sneezed a minute ago in an empty elevator, and the neighbor became infected by entering afterward. Where should the line be drawn between externalities that create serious inconvenience and therefore generate a fair demand for compensation, and externalities that barely stand out from the general background and are not worth all the fuss?
It should also be noted that the same activity can create both negative and positive externalities, and a demand for compensation for negative effects may be met with a refusal based on the grounds that the positive effect outweighs the negative one. For example, a road built by one neighbor not only creates noise from passing traffic but also increases the value of another neighbor’s land that it passes by. But, for instance, a popular pub nearby is a plus for some and a minus for others. Carbon dioxide emissions, according to some reports, can cause global climate change, but this is such a complex externality that it is completely unclear why only the potential harm from this change should be taken into account, ignoring the potential benefit. Moreover, practically everyone produces carbon emissions, and even if this externality is considered completely negative, it is unclear how to account for the size of the effect produced by each person and how to calculate compensation.
At the same time, externalities are evaluated, like everything else in the world, completely subjectively, and these evaluations can change over time. For example, the “evil eye” can have a real effect as long as the person who was cursed believes in the existence of this negative externality, and cease to have any effect as soon as that person stops believing in it.
An externality can also be probabilistic in nature, manifesting, for example, as an increase in the probability of being hit by a car or developing cancer.
And, to top it all off, externalities may simply be non-obvious at the current moment because they are based on, for example, some as-yet undiscovered physical effect.