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.

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

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

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

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.

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

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.

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

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

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

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

analyse alternative solutions to deal with an externality

analyse alternative solutions to deal with an externality 2003

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

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

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

GOVERNMENT POLICY TOWARD EXTERNALITIES analyse alternative solutions to deal with an externality 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

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

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.

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.

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.