Misinformation as a Negative Externality

Abstract

In the wake of events like the COVID-19 pandemic, the storming of the Capitol, and the Russian invasion of Ukraine, it’s time to start labeling misinformation for what it is: a negative externality to society. The spillover effects from the proliferation of mis- and disinformation have the potential to negatively impact the institution of democracy, civic engagement, and downstream health outcomes. Put simply, to understand the misinformation problem is to understand its complexities, its pitfalls, and its motivations. Taken as a whole, this paper articulates the need for a divergence from conventional economic theory on efficiency to a pro-social, welfare-based approach to internalization efforts. In doing so, this analysis presents a full-scale characterization of misinformation as a negative externality, starting with the reorganization of traditional microeconomic theory, followed by a platform-by-platform evaluation of various internalization strategies and evidence from the literature on the impacts of misinformation, and concluding with a commentary on potential remediation approaches.