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The existence of external benefit and external cost leads to misallocation of resources. External cost For example, when drivers are not liable for the health damage of car exhaust, drivers will equate only marginal private cost with marginal benefit. But if drivers are forced to pay for the health damage of car exhaust, their marginal cost will go up by the amount of the external cost.
Indirect costs are the cost of conducting business that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with specific projects (such as individual grants or contracts) or with a specific activities (such as instruction, research, public service).