The free market creates negative externalities, meaning that companies in any type of production (civilian or military) and in any type of economy produce such things as pollution, which costs society a great deal but costs the producer nothing. Since they are not a cost to the companies, the companies will see only what is profitable to them, not to society as a whole. This will create inefficiency in the economy. An externality or spillover of an economic transaction is an impact on a party that is not directly involved in the transaction. In other words, an externality is an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume. In such a case, prices do not reflect the full costs or benefits in production or consumption of a product or service. An advantageous impact is called an external benefit or positive externality, while a detrimental impact is called an external cost or negative externality. Externalities appear when activities of one agent affect preferences/technologies of other agents. In terms of typology, there are different types of externalities with different causes and different approaches and possible solutions.
