Benefits arising from the production of a good or service that are experienced by third parties e.g. the benefits of innovation spillover especially after the expiry of patents.
Below is a diagram to show a positive production externality that is being imposed on third parties. This caused because of the divergence between the marginal private cost and marginal social cost. Because individual producers do not realise the positive externality they are releasing onto society they produce a level of output below the socially optimal level, creating a dead weight loss triangle and market failure.
