Debating Positive Externalities

A couple of days ago, co-blogger Steve added the following on my post about positive externalities:

That third parties may catch the crumbs that fall from the table (an imperfect, zero-sum analogy) does not make a transaction less efficient. I may derive utility from watching (for free) an amateur athletic event, in which the players derive utility from their (non-remunerative) participation. Similarly, I suspect that the majority of Wikipedia contributors derive utility from their posting activity, and are probably (more or less) aware that they could be devoting their time to any number of alternative activities.

I'll start with point 2. I'm in complete agreement that Wikipedians (probably) have sufficient notice that they could differently use their time. Furthermore, I have no doubt that they feel the sacrifice. But that's only part of the equation. With positive externalities, the argument is that for any party Y (like us low-life non-contributing Wikipedia users), there's a "spillover" benefit made possible at the cost of X (diligently contributing to the Wiki project) that X isn't sufficiently enjoying. Meaning, basically, that even if X is completely cognisant of his costs, the problem is more X not realising his share of the benefits. That brings us to point 1: I would argue that it is indeed inefficient for all us do-nothings to reap an aggregate benefit over and above what utility ultimately flows back to X.

Now, Steve and I both might be right: it's quite possible that the Xs know what's owed them, and contribute nonetheless. It's totally conceivable that they see the impact of their work–the ease-of-life they make possible, the instant access to universal facts, etc.–and yet, they derive such benefit through contributing that it's all in a good day's work. But, in that case, there isn't a "spillover" period! The Xs are internalising our benefit. 100% of it. And in that case, we have no externality.

But something makes me think that's not true. In a world where there were no Wiki, but a very close equivalent with subscription fees that compensated authors, I would pay. I wouldn't shell out too much. But I would pay something. And only allows me to conclude one thing: at least as far as I'm concerned there is a consumer surplus. It's that surplus that's inefficient. And it's a surplus occasioned by externalities.

Now, I should make one major clarification. It's not my goal to ruin Wiki. Nor is it some petty, one-man crusade of mine to abolish any positive externalities wherever they may be. My goal is to illuminate their inefficiency. There are countless examples of inefficiency that society (for better or worse) tolerates in pursuit of higher objectives. There wouldn't be a Federal Reserve if not. There wouldn't be a lot of things if not. But, like all sources of inefficiency, the existence of externalities (positive or otherwise) gives the economist some heartburn. Inefficiency is, ceteris paribus, undesirable. Now, that's not to say it's not worth it. (It may be a damned good hot dog.) But there's always a presumption to overcome.