Negative externalities refer to the unintended, harmful consequences of economic activities not accounted for in their cost. Pollution is a classic example. When factories produce goods, they may emit pollutants into the air or water, affecting public health and biodiversity.
Linear models often ignore these externalities, leading to a one-dimensional view of production. This oversight can cause
- Environmental damage due to unchecked emissions.
- Health issues among nearby populations.
- Social costs like increased healthcare spending.
By not addressing these externalities, linear models promote short-term gains often at the cost of long-term sustainability and public welfare.