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Central to environmental economics is the concept of an externality. This means that some effects of an activity are not taken into account in its price. For instance, a firm emitting pollution will typically not take into account the costs that its pollution imposes on others. As a result, pollution in excess of the socially "efficient" level may occur. One frequently-noted type of externality is Garrett Hardin's Tragedy of the Commons, which arises for many public goods (goods that are "non-excludable" and "rival" - that is, they are open to all, but potentially exhaustible). In the absence of restrictions, users of an open-access resource will use it more than if they had to pay for it and had exclusive rights, leading to environmental degradation. In economic terminology, externalities are examples of market failures, in which the unfettered market does not lead to a efficient outcome.
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