Global Water Forum
Positive externalities: flood defence
Investing in flood defences means that everybody in the area benefits from reduced flooding, not just the person who makes the investment. This creates a positive externality as the social benefits of flood defence are higher than the private benefits. Since users only take into account their private benefits, positive externalities mean that the actual amount of investment in flood defence (QA) is less than the efficient amount (QE) and the resource is undersupplied privately creating a welfare loss.
Positive externalities: flood defence
Investing in flood defences means that everybody in the area benefits from reduced flooding, not just the person who makes the investment. This creates a positive externality as the social benefits of flood defence are higher than the private benefits. Since users only take into account their private benefits, positive externalities mean that the actual amount of investment in flood defence (QA) is less than the efficient amount (QE) and the resource is undersupplied privately creating a welfare loss.