Spillover (economics): Difference between revisions

19th century economists [[John Stuart Mill]] and [[Henry Sidgwick]] are credited with founding the early concepts related to spillover effects. These ideas extend upon [[Adam Smith|Adam Smith's]] famous ‘[[Invisible hand|Invisible Hand]]’ theory which is a price that suggests prices can be naturally determined by the forces of supply and demand to form a market price and market quantity where buyers and sellers are willing to make a transaction. Spillover effects, also known as externalities in market theory are the costs associated with a transaction borne upon a party/parties that are non participants in the transaction (ie, Production costs do not consider the cost of pollution on society at large). Furthermore, Mill argues that [[Economic interventionism|Government intervention]] in the market can be a useful tool when necessary to prevent or mitigate spillover effects when necessary </ref>{{cite journal |last1=Medema |first1=Steven G. |title=The Hesitant Hand: Mill, Sidgwick, and the Evolution of the Theory of Market Failure |journal=History of Political Economy |date=1 September 2007 |volume=39 |issue=3 |pages=331–358 |doi=https://doi.org/10.1215/00182702-2007-014}}</ref> as opposed to Adam Smith who believed a competitive market with little to no intervention provides the most adequate outcome.