Social cost

A social cost is a cost that is not reflected in the production cost of goods and services but is, however, borne by society at large. As such, it is an example of a negative externality.

For example, the logging of trees for timber may result in the society losing a recreation area, shade, beauty, and air quality, but this loss is usually not quantified and included in the price of the timber that is made from the trees. As a result, individual entitities in the marketplace have no incentive to factor in externalities; this can lead to inefficiency, as more of an activity is performed than would be if its cost had a true accounting. The idea of social cost is often used as an argument for government action and against libertarianism.

Social cost

See also