When I give students an example of externalities, I usually cite the time when an individual’s consumption affects the well-being of the other. I speak of the smoker’s case, the neighbor listening to loud music, and other classic examples of textbook.
Then I bring a case that certainly will not go into any textbook. I will not reproduce the whole story, but the beginning of the story is as follows:
In Aquiraz, Ceará, Dona Tarcília Bezerra built an expansion of her cabaret, whose activities were constantly growing after creating unemployment insurance for fishermen and various other types of bags. In response, a local evangelical church began a strong campaign to block expansion, with morning, afternoon, and evening prayer sessions. The work of enlargement and reform progressed rapidly up to a week before reopening, when lightning struck the cabaret burning the electrical installations and causing a fire that destroyed the roof and much of the construction. After the cabaret was destroyed, the pastor and church believers began to boast “of the great power of prayer.”
Well, the case went to court. He wondered if legislators thought of this possible externality of unemployment insurance for fishermen when they voted for this measure. 🙂