A pecuniary externality occurs when the actions of an economic agent cause an increase or decrease in market prices.
When some agents are subject to financial constraints, then changes in their net worth or collateral that result from pecuniary externalities may have first order welfare implications.
[9] For instance, pecuniary externalities can motivate individuals or firms to adopt technologies or practices that have spillover benefits for others.
The decrease in electricity costs for others due to increased use of solar panels creates positive pecuniary externalities, making it beneficial for both individual adopters and society as a whole.
For example, price increases caused by market dominance or monopolistic tendencies can result in a consumer surplus and disrupt the allocation of resources.
[11] Despite the potential for positive outcomes, negative pecuniary externalities can cause distortions and inefficiencies by forcing firms to exercise undue influence over markets.