<p>According to the examples given in the paper, <strong>direct externality</strong> results from, among other things, unsolicited promotions, while the sources of <strong>indirect / consequential externality</strong> are price discrimination, etc. </p>

<p>In this sense, the externality on the individuals (whose information is collected and used) is deemed direct if the information about them is used directly back at them (in the form of targeted advertising, for example). In contrast, indirect externality only occurs if the individuals choose to engage in transactions with the firm which has (collected or purchased) their information, and that these transactions make them vulnerable to price discrimination, etc. In other words, externality of this second kind occurs <em>consequently</em>.</p>

CC BY-SA 3.0
2015-01-26T20:02:06.643Z
2015-01-26T20:02:06.643Z
Herr K.
<p>I'm reading Png &amp; Hui on the economics of privacy. (<a href="http://128.118.178.162/eps/io/papers/0505/0505007.pdf" rel="nofollow">http://128.118.178.162/eps/io/papers/0505/0505007.pdf</a> great review article). Can someone explain the difference between direct and consequential externalities to me? as in:</p>

<blockquote>
  <p>"Generally, in competitive settings, an improvement in the accuracy of
  productive personal  information may lead the less informed party
  (seller or employer) to include more or  exclude some marginal persons
  (consumers or workers).  This is a consequential externality on some
  members of the better-informed side of the market.  The consequential
  externality might be positive or negative. "</p>
</blockquote>

<externalities>
What's the difference between a "consequential" and a "direct" externality?
tonetone
# What's the difference between a "consequential" and a "direct" externality?

(Asked by: username_0 on 2015-01-26)

I'm reading Png & Hui on the economics of privacy. (<http://128.118.178.162/eps/io/papers/0505/0505007.pdf> great review article). Can someone explain the difference between direct and consequential externalities to me? as in:

> "Generally, in competitive settings, an improvement in the accuracy of
> productive personal information may lead the less informed party
> (seller or employer) to include more or exclude some marginal persons
> (consumers or workers). This is a consequential externality on some
> members of the better-informed side of the market. The consequential
> externality might be positive or negative. "

**Tags:** externalities

---

## 1 answers

### Answer by username_1 on 2015-01-26. Score: 1

According to the examples given in the paper, **direct externality** results from, among other things, unsolicited promotions, while the sources of **indirect / consequential externality** are price discrimination, etc.

In this sense, the externality on the individuals (whose information is collected and used) is deemed direct if the information about them is used directly back at them (in the form of targeted advertising, for example). In contrast, indirect externality only occurs if the individuals choose to engage in transactions with the firm which has (collected or purchased) their information, and that these transactions make them vulnerable to price discrimination, etc. In other words, externality of this second kind occurs *consequently*.


---

