1. EXTERNALITIES AND MARKET INEFFICIENCY
analyse alternative solutions to deal with an externality
EXTERNALITIES AND MARKET INEFFICIENCY
1. An externality refers to the uncompensated impact of one person’s actions on the well-being of a bystander.
2. Externalities cause markets to be inefficient, and thus fail.

2. Problems caused by Commuting
analyse alternative solutions to deal with an externality
Problems caused by Commuting ?

3. Problems caused by Commuting
analyse alternative solutions to deal with an externality
Problems caused by Commuting ?

4. analyse alternative solutions to deal with an externality
In Love with the Car

5. In Love with the Car our roads are more congested
analyse alternative solutions to deal with an externality
In Love with the Car
our roads are more congested
our journey times are getting longer
the stresses of driving are made worse by increased traffic and the associated financial costs of running a car.

6. analyse alternative solutions to deal with an externality
In Love with the Car
CBI estimates that congestion costs British businesses £19 billion per year

7. Transport accounts for a quarter of the UK's carbon emissions;
analyse alternative solutions to deal with an externality
Transport accounts for a quarter of the UK's carbon emissions;
road vehicles are responsible for 80% of total UK transport pollution.

8. Problems caused by Commuting
analyse alternative solutions to deal with an externality
Problems caused by Commuting
Traffic Congestion
Air pollution
Noise pollution
Visual pollution
Parking problems
Destruction of houses
Increased risk of accidents

9. Possible strategies Athens/Paris/Mexico City London Singapore
analyse alternative solutions to deal with an externality
Possible strategies
Athens/Paris/Mexico City
London
Singapore
Research…Discuss…Decide…Justify
Criteria: efficiency, equity, cost, technical feasibility

10. Pollution clouds of ozone, nitrogen dioxide and smoke Particles
analyse alternative solutions to deal with an externality
Athens and the Nefos
Pollution clouds of ozone,
nitrogen dioxide and smoke
Particles
-carbon monoxide and sulphur
dioxide also present

11. Pollution clouds of ozone, nitrogen dioxide and smoke particles
analyse alternative solutions to deal with an externality
Athens and the Nefos
Pollution clouds of ozone,
nitrogen dioxide and smoke
particles
1980s experiment
Even-numbered licence plates only allowed
into city on even-numbered dates
Odd-numbered licence plates only allowed
into city on odd-numbered dates

12. analyse alternative solutions to deal with an externality

13. analyse alternative solutions to deal with an externality
2003

14. analyse alternative solutions to deal with an externality
London
Congestion pricing, where drivers are charged for using busy urban routes
Bus priority measures, with bus travel becoming easier at the expense of car users

15. analyse alternative solutions to deal with an externality
The scheme consists of ERP gantries located at all entrances to Singapore's CBD.
They are also located along roads with heavy traffic to discourage usage during peak hours.
All Singaporean cars must have an in-vehicle unit (IU).
When the car passes under a gantry, a toll is deducted from a stored-value card (CashCard) placed in the IU, depending on the time and location (varying from S$0.25 to S$3.00 for passenger cars).
Off-peak is toll-free.
Non-Singaporean cars entering Singapore must either rent an IU or pay a daily flat fee.
Singapore

16. Possible strategies Athens/Paris London Singapore
analyse alternative solutions to deal with an externality
Possible strategies
Athens/Paris
London
Singapore
Listen…Discuss…Decide…Justify
Criteria: efficiency, equity, cost, technical feasibility

17. GOVERNMENT POLICY TOWARD EXTERNALITIES
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GOVERNMENT POLICY TOWARD EXTERNALITIES
Command-and-Control Policies
Usually take the form of regulations:
Forbid certain behaviour.
Require certain behaviour.
Examples:
Requirements that all students be immunized.
Stipulations on pollution emission levels set by the Environmental Agency (EA).
Ban cars from a city centre

18. Bristol’s car club – a model for the future?
analyse alternative solutions to deal with an externality
Bristol’s car club – a model for the future?
A pool of cars (25 in total) available for members to book at convenient locations throughout the city
Cars can be hired for as much as 24 hours, or as little as one hour
Members of the scheme pay a monthly fee of £15
Easy access to the vehicles via a smartcard
Estimated savings of at least £1000 per year through not having to own a car
Making a positive contribution to the environment

19. Bristol’s car club – a model for the future?
analyse alternative solutions to deal with an externality
Bristol’s car club – a model for the future?
Step 1:
Cars can be
booked online or
over the phone.

20. Bristol’s car club – a model for the future?
analyse alternative solutions to deal with an externality
Bristol’s car club – a model for the future?
Step 2:
Cars are unlocked
using a smart card
held against a
sensor on the
windscreen.

21. Bristol’s car club – a model for the future?
analyse alternative solutions to deal with an externality
Bristol’s car club – a model for the future?
Step 3:
The driver enters
their pin and can
drive away.