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Externalities let you account for the true cost of products by including hidden costs like environmental damage.
Nivi: What’s a mispriced externality? You mentioned it on a previous episode.
Naval: An externality is where there’s an additional cost imposed by whatever product is being produced or consumed, that’s not accounted for in the price of the product. This can happen for many reasons. Sometimes you can fix it by putting the cost back into the price.
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