Positive unintended consequences

Why it is good not only to have an eye for detrimental unintended consequences

Much of what we do in our day-to-day life can be viewed through economic glasses: transactions with costs and benefits for the parties concerned. When these are voluntary, as most are, the benefits for each participant exceed their costs, and the transaction has a positive sum. An obvious example is a purchase in a shop, where consumers prefer to have the goods or services in return for their money, and the supplier prefers the money in return for the item or their effort. What we do for a living is a special case of this: we offer our time and effort and get paid by an employer or a client. But it does stretch well beyond the commercial realm. We may also offer a colleague a lift, which reciprocates for the last time they did the same for us, or, as a member of the parent-teacher association in our children’s school, we volunteer at the tea stall during annual school concert. Even transactions involving nobody but ourselves are positive cost/benefit sums: when we decide to clean the windows, or have that remaining piece of cake, we are usually well aware of both aspects, and go ahead because the upside outweighs the downside.

For involuntary transactions, such as a parking fine, or a mugger stealing your wallet, this does not apply, and they tend to be zero-sum affairs: what the other party gains, you lose (unless you are the mugger, in which case it is the other way round).

Involuntarily involved

But sometimes, transactions do have involuntary participants: people who are not actively involved, but who nonetheless experience some of its consequences. These consequences for third parties are often not directly considered by the transaction’s participants. Also, because they are not intentional, they are not accounted for in the costs and benefit evaluation. The same phenomenon can occur even when we are a participant (or even the only participant) in a transaction with consequences for ourselves we did not anticipate. The economic term for a third party confronted with the consequences of a transaction they do not take part in is an externality, and if we ourselves experience them, it is an internality.