the undercover economist

8 October 2014 The Undercover EconomistChapter-4 1

The Undercover Economist-Tim Harford

April 15, 2023 The Undercover EconomistChapter-4 2

Crosstown Traffic

Team-16J.Jeyalakshmi

R.RachelT.Saravanan

M.Surya Prakash

8 October 2014 The Undercover EconomistChapter-4 3

Happy man’s 3 Wishes

ExternalitySide effect to buy standers

Wish

Never to upgrade

Computer Software

Doctor gives appropriate treatment

WashingtonWithout Pollution

Reality We have no idea of

Doctor’s treatment

EXTERNALITY


Prices-Marginal & Average

UNIVERSITY TRAFFIC CONGESTION

Better orange juice Better trains, cycles, routes, pedestrian crossings

Scrapping upfront fees and charging people for what they drink

Scrapping upfront fees and charging people for what they drive


Pricing should reflect Damage

Externality charging needs to strike right balance between pleasure and trouble

Urban Drive Vs Rural DriveMaking someone better off & No one worse

offMarginal Price should reflect externality

cost


2 objections to Externality Charges

Unfair tax aimed at poor drivers off the road

Rich drivers afford to drive more and cause more environmental damage

Poor people use bicycle , walk or take bus

Poor people drive a lot pay large amount of tax

Congestion Charge is true Congestion Charge is Useless


Moral high ground of Environmentalism

Pollution is illegal for poor and affordable for rich

Why the rich should be allowed to pollute? People take advantage of externality chargePartial response- rich do not pollute for fun

they do sensible trip


Alternatives to Congestion Charging


Is Life Worth??

Ideal Externality Charge addresses all the real external and only the real external charges

Drivers---------- Charged---------- Densely populated area

Drivers---------- Charged---------- For emitted pollutants in every trip

Computers in car- Measure – Congestion, Pollution

Cannot Measure – People’s time Making Decision putting Value on our environment

Eg: not buying smoke alarm-increasing chances to die


Is Life Worth?

nterest.


Is Life Worth?

Preference is not just deduced but actually defined by choices

People Prefer on HOUSE PRICE & WAGES

Nobody has best interest at heart quite as much as you do yourself !!!


New Orleans Effect

Congestion Charging change small decisions

Externality Pricing attacks the problem but makes no assumption about the solution

Camelback House


Battling Pollution-Sulphur

sulphur emission sulphur scrubber

Power Generators initial resistance arguing Sulphur Scrubbers are expensive

EPA auctions for right to emit Sulphur dioxide


Battling Pollution-Sulphur Contd.

Companies installed willingly rather than buying permits

Carbon Emission – Similar auction recommended by economists


Handling of ExternalitiesTree Plantation- Neutralization-Not certain

of chargesPositive Externality – Beautifying apartment

bringing pleasure to streets – no rewardNegative Externality – paying for tax

pollutant Too much of Positive Externality-

eg:Tree&Wall , I become richer/ Neighbor becomes richer

the undercover economist

Economy & Finance