Remember to cut and paste question and then include your answer. Also label blog post – Reflection Chapter 10. (Each question below should be answered with 1-2 sentences.)
This is generally a very interesting chapter for everyone…. answer the following questions.
- What is an example of a negative externality that interests you (be very specific in your response*)?
- Could the problem be solved via negotiation (Coase Theorem)? Why or why not?
- Do you favor regulation to solve this externality? Why or why not?
- Would you regulate your example via a tax or via a rule? Why do you prefer one solution over the other?
* (Don’t respond “pollution”. Be specific. What type of pollution, caused by what. There are many examples of externalities beyond “pollution” and of course many many types of pollution.)
Road Congestion is a negative externality. This traffic can slow down other drivers trying to use the road to get somewhere. One study by Texas A&M estimates that USA drivers commuting near metro areas will spend an average of 42 hours per year sitting in traffic.
If you attempted to solve the problem of traffic congestion with the Coase Theorem, you would need private parties to be able to bargain over the allocation of resources. You could do this in a number of ways like setting up a marketplace for selling toll permits based on certain times of the day and allow individuals to buy and sell these toll permits to each other. This would allow the market to set the prices on road permits so that those willing to pay more at high traffic times and routes, could pay more to use the road.
I do favor regulation to solve this externality. Regulation can be put in place to restrict certain drivers from using the roads at certain times. You can also have the government increase the supply of roads to try and reduce the congestion. The government can increase the gasoline tax, drivers license fees, car registration taxes, and even setup more toll roads to directly tax the users of certain routes. Tolls can be increased at high demand times to try and curb demand on certain roads. The government can increase the reliability and speed of public transportation options with trains, buses, and subways. I would prefer taxes over rules as taxes more easily curb behavior and rules can be tough to regulate and enforce.
Dude.World 