What are Externalized Benefits?

Externalized benefits are benefits which emerge from a financial transaction or business decision. These benefits, however, do not directly invent either of the parties involved in the transaction; rather, they benefit a third party, or the world at large. A classic example of an externalized benefit can be found in the business of beekeeping, where a beekeeper's bees help to pollinate plants and trees, thereby benefiting the surrounding community.

The often unintended repercussions of a financial transaction which have an impact on people outside of that transaction are collectively known as externalities. Many people break externalities into the rough categories of negative externalities and positive externalities. Negative externalities are things which harm people outside of the transaction, with industrial pollution being a well-known example of a negative externality. Positive externalities, also known as externalized benefits, are externalities which are viewed as positive or good.

Because externalized benefits have a positive effect, some companies actually work to create externalized benefits so that they will be seen as more socially responsible, especially when consumers began clamoring for more environmentally friendly business models in the late 20th century. Commonly, however, externalized benefits are simply happenstance events which could not have been predicted.

Intellectual property such as inventions often comes with externalized benefits, as people explore the invention and retool it or come up with refinements. Sometimes, entirely new applications for an invention may be discovered by people who were not involved in the original process, and many companies actually invest a great deal of energy and money in an attempt to reap such externalized benefits.

In another form of externalized benefit known as a network externality, so many people adopt a new technology that the technology becomes widely accepted, leading to widespread benefits for users of the technology as well as others. For example, when early facsimile machines were introduced, they were expensive and cumbersome to use, but as more and more consumers bought them, the fax network expanded, and companies responded by developing better technology at lower cost, making the technology available to all.

A growing interest in externalities has lead to widespread attempts to track and measure positive and negative externalities when considering a company's overall contribution to the marketplace and the world. Companies which incur a large number of negative externalities, for example, may be viewed as detrimental to society, while companies which generate externalized benefits are viewed as generally positive additions to society.