A harmful externality; that is, a harmful effect of one economic agent's actions on another. Considered a distortion because the first agent has inadequate incentive to curtail the action. Examples are pollution from factories (a production externality) and smoke from cigarettes (a consumption externality).
A cost on third parties resulting from the activity of others.
A Negative externality is an undesirable impact on an unrelated third party because the production or consumption of a good or a service. In other words, it?s an unforeseen negative consequence from some market activity.