The study was conducted in Hilly Zones of Karnataka to assess the resource use efficiency and externalities in banana and its competing crop. Cobb-Douglas type of production function (per hectare), was used to assess the resource use efficiency in banana and its competing crops production. Resource use efficiency in banana production was high in case of chemical fertilizer (4.32) followed by sucker (3.25), FYM (2.47) and irrigation (1.93), indicating considerable scope to increase banana production by increasing the level of these inputs. The resources were over utilized in case of competing crops (paddy and ginger). Thus, farmers can reduce the wastage of resources by cultivating banana crop. The externality for resource use in banana and its competing crops was quantified. The results revealed that the cost incurred on fertilizers was more in case of ginger (Rs. 43,200/ha) followed by banana (Rs. 25,450/ha) and paddy (Rs. 9,644/ ha). With respect to PPC also the cost was more in ginger (Rs. 69,519/ha) compared to paddy (Rs.5,630/ ha) and banana (Rs. 3,893/ ha). This clearly indicated that ecologically banana has very less negative impact due to less usage of PPC. Acknowledgement :