Definition from wikipedia: An externality is the effect of a transaction between two parties on a third party who is not involved in the carrying out of that transaction.
So, an example of an externalitiy might be: downtown xcompany builds a new production facility in the cheaper suburbs which supplies their locations downtown. The tiny highway connecting them is now overburdened with all of the traffic and tax money must be spent to improve the roads. The externality is- xcompany sells items to their customers, but part of their support network is the state tax which pays for the roadwork. xcompany saves by building in the suburbs, taxpayers (who, certainly, don't all buy xcompany's products) foot the bill for the increased profits for xcomapny.
Externalities are becoming a prominent feature in our daily lives.
Take the consumer goods market. Thorough testing of software and hardware is no longer done.
Windows software is a prime example. Windows is an ongoing public beta. "Public Beta" means that the verion is admittedly not working, and the company wants the public to use it ayway and find out what is wrong so they can fix it- the thinking being that you benefit from getting the software early, and they benefit by your feedback. As we see weekly, they still have not fixed it, as patches and updates constantly come out. I won't bother to go on and on about the fact that a beta is typically free.
When you buy something electronic now, you can pretty much count on getting no help whatsoever from the company that made it if the problems you have aren't RTFM or general don't-know-what-I'm-doing problems. You'll get stuck on hold, transferred, walked through the script by someone who only knows how to do three preschool fixes and doesn't recognize a user who knows what is wrong and can articulately describe it from one who CFTAWAF.
This is an externailty in a way, although it's a little difficult to recognize.
Stockholders in the company and CEOs who need another gold-plated waterbed complain that profits are down. Beancounters reply that we spend X on support, and boy, that's a lot. The numbers get compared to some other department, and our myopic and selfish pals decide to cut costs there to increase waterbed fund. So, company increases profits for stockholders by cutting support funding. Externalization: person buying product gets screwed when their doodad breaks.
What recourse do you have once this happens? Go out into the street, stomp your feet and cry for your mommy. That's about it.
You can't return the product, because it's open.
You can't drive down to the manufacturer and storm into their office, because it's a megacorporation, and they're not down the street, and even if they are, there are armed guards to assure you don't get past the hedge.
You can't do a damn thing about it but complain on your blog. Every now and then that works, and every other now and then, that gets you blog yanked by some shyster lawyer.