An externality results when the actions of one agent affects the environment of another agent in the economy (Varian, 1992). The located article that represents a real-world case of an externality is titled, “Fracking Boom in Northeast Causes Pipeline Backlog”. It comes from the US News site. According to the article, there has been a boom in the natural gas production that has outpaced the construction of the pipelines thereby causing a decrease in the prices of natural gases. The gas prices are said to have gone even below the average spot prices. The chosen case is an externality since there has been a decrease in the prices of natural gas, below the average levels, which has been caused by a mismatch between the production of natural gas and the construction of natural gas pipelines. The production of natural gas is high while construction of the pipelines is slow.

The spillover is caused by the producers of natural gas and the plumbers who are constructing the gas pipelines. The producers of natural gas produce the gas in excess amounts that the available pipes cannot hold. The plumbers are constructing the pipes at a slow rate such that the pipes cannot hold the amount of gas being produced.

To my opinion, the plumbers are behaving ethically since they have to be careful in the construction of the pipes to avoid breakage in the future that would cause damages to the nearby areas. The natural gas producers are behaving in an unethical manner. This is because they need to regulate the amounts of gas they are producing to manageable levels.

The resulting externality is both consumption based, and production based. The externality is production based since there is excess production of gas. It is a consumption based externality since the excess production is brought about by the increased demand for the gas.

The spillover cost is paid by the gas producing companies. The companies are paying the cost through their reduced profits caused by decreased gas prices. It is ethical to ask the gas producing companies to continue paying the spillover costs. This is because the gas producing companies are the major causes of the externality.

The article does not address any solution to the externality.