ory, odors from a packing plant, or waste discharges into a stream. This approach to externalities may be referred to as the contemporary concept, and such effects may be referred to as technological externalities. The original concept of exter nalities, which was framed by Albert Marshall, and which is now referred to as the pecuniary concept of externalities, dealt with resource exploitation.
Although externalities are most often thought of in terms of adverse effects, it is important to remember that, in an
economic context, an externality may be either a positive or a negative outcome. With respect to the impact on urban areas ofthe proposed increase in the federal transportation fuel tax, however, only negative externalities would beinvolved.
Dealing with public sector externalities in economic analysis requires that one (1) identify and (2) evaluate the (3) social benefits and (4) social costs of (5) a proposed governmental action. The term social benefits may be used in
two ways. First, social benefits may be considered to be all of the gains in welfare which are derived from a specific economic decision. Alternatively, social benefits may be viewed in a more narrow context as being only those benefits accruing to those in a society other than the decision maker(s). In this alternative approach, social benefits are contrasted to private benefits. Social benefits, in this alternative context, are viewed as externalities. The hoped for reduction in the federal budget deficit envisioned in the proposal to increase the federal transportation fuel tax is a potential social benefit.
The term social costs refers to the total costs borne by society as a whole as a result of a specific economic deci sion. Thus, social costs consist of (1) the opportunity costs associated with resources used, (2) the value of any loss in welfare associated with a specific economic decision,and (3) any increase in costs for ...