Regulations that make companies pay for negative externalities will most likely increase production costs.
The externality is a concept that measures the impact that the economic activity of an economic agent exerts on the others, to whom it has no relation with that economic activity. In this sense, externalities can be considered positive or negative.
Positive externalities occur when an economic activity positively affects the lives of other individuals. For example, if a store owner cleans the sidewalk in front of their store, the other individuals receive the positive impact of that cleaning, that is a positive externality.
Negative externalities occur when the impact on other people's lives is hampered by the economic activity of some economic agent. For example, pollution of a steelworks is a negative externality for society, as it affects everyone, even those who do not work in the steelworks. In this context, negative externalities, when they are serious, are charged to those who produce them, whether in the form of fines, fees or any other costly requirement.
Thus, the negative externality is considered a cost of the productive process.
