New Jersey is the most densely populated state in the country, lying along the northeastern corridor, an area of almost continuous development stretching from Washington, D.C., to Boston. Yet a drive through New Jersey reveals a surprising feature: acre upon acre of farmland, growing everything from corn to pumpkins to the famous Jersey tomatoes. This situation is no accident: starting in 1961, New Jerseyans have voted in a series of measures that subsidize farmers to permanently preserve their farmland rather than sell it to developers. By 2013, the Green Acres Program, administered by the state, had preserved over 640,000 acres of open space.

Why have New Jersey citizens voted to raise their own taxes to subsidize the preservation of farmland? Because they believe that preserved farmland in an already heavily developed state provides external benefits, such as natural beauty, access to fresh food, and the conservation of wild bird populations. In addition, preservation alleviates the external costs that come with more development, such as pressure on roads, water supplies, and municipal services—and, inevitably, more pollution.

In this section we’ll explore the topics of external benefits and positive externalities. They are, in many ways, the mirror images of external costs and negative externalities. Left to its own, the market will produce too little of a good (in this case, preserved New Jersey farmland) that confers external benefits on others. But society as a whole is better off when policies are adopted that increase the supply of such a good.