Legal Definitions - spillover

Spillover refers to an unintended consequence, either positive or negative, that arises from an economic activity or transaction and affects a third party who was not directly involved in that activity or transaction. It is essentially another term for an externality. These effects "spill over" from the primary actors to others in the surrounding environment.

Here are some examples illustrating the concept of spillover:

• Example 1 (Positive Spillover - Environmental/Community): A local brewery invests in a new, state-of-the-art water purification system for its wastewater. This system not only cleans the brewery's discharge to meet environmental standards but also significantly improves the overall water quality of the river downstream. This improvement benefits local fishermen, kayakers, and wildlife enthusiasts who were not customers of the brewery and did not contribute to the cost of the purification system.

  Explanation: The improved river quality is a positive spillover. It's an unintended beneficial consequence of the brewery's investment that "spills over" to benefit third parties (fishermen, kayakers, wildlife) who were not directly involved in the brewery's operations or its transaction to purchase the purification system.

• Example 2 (Negative Spillover - Public Health/Environmental): A large agricultural farm uses certain pesticides on its crops to protect against pests. Over time, runoff from these fields carries pesticide residues into a nearby aquifer, which serves as the primary drinking water source for a residential community. Members of the community begin to experience health issues attributed to the contaminated water.

  Explanation: The contamination of the aquifer and the subsequent health problems in the community are negative spillovers. These are unintended harmful consequences of the farm's pesticide use that "spill over" to affect a third-party community that was not involved in the farming operations or the purchase of the pesticides.

• Example 3 (Positive Spillover - Economic/Social): A major university decides to establish a new research campus in a struggling urban neighborhood. This significant investment leads to the creation of numerous new jobs, attracts related businesses (such as cafes, bookstores, and housing developers), and significantly boosts property values and local tax revenue. This revitalization benefits the entire area, including residents and businesses not directly affiliated with the university.

  Explanation: The economic growth, job creation, increased property values, and improved local services are positive spillovers. These are beneficial consequences of the university's decision that "spill over" to benefit the broader community and local government beyond the university's direct employees and students.