§ 01
| Type | Example | Investment Implication |
|---|---|---|
| Negative externality | Factory pollutes river, community bears health costs | Regulatory fines, cleanup liability, ESG risk premium |
| Positive externality | Company trains workers who benefit the whole industry | May underinvest (benefit leaks to competitors) |
| Carbon externality | Emissions contribute to climate change | Carbon taxes, stranded assets, transition risk |
§ 02
When externalities get priced in (through regulation, lawsuits, or carbon taxes), companies that created them face sudden costs. This is why ESG analysis matters, even for non-ethical investors.
§ 03
Look up any energy company and check news for regulatory or environmental costs. These are externalities being internalized.
§ 04
§ 05
A fossil-fuel company's true social cost of production is 20% higher than reported due to climate externalities. How does this affect its investment case?
Five questions · AI feedback
Sit with the ideas.
A government announces a $50-per-ton carbon tax. Company A emits 10 million tons annually. Company B (a software firm) emits virtually nothing. What is the investment implication?
Why: