Internalizing Externalities and Public Goods

Negative Externalities

Internalizing externalities and public goods

Discussion Question: Externalities

The most obvious negative externalities of traffic congestion, even for non-drivers who take public transportation, include the noise and air pollution caused by traffic. Pedestrians may also run the risk of being hit by a passing driver who is trying to maneuver his or her way in rush hour traffic. There are significant opportunity costs to living in a large city where many people drive. Large commercial parking lots take up space that otherwise could be allocated for use for retail stores that all residents could patronize. Public parking areas take up space that could otherwise be devoted to public parks. Cyclists and pedestrians often have notably decreased quality of life and freedom of movement, thanks to the fact that they must compete for space with cars on city streets. While even drivers bear some of these costs when they become pedestrians and cyclists, they receive benefits from their cars while riders who exclusively use the subway receive none. Additionally, subway riders have added costs that regular drivers do not, such as waiting for subway cars, paying subway fares, and the dangers of traveling the subways at night (100).

Because the benefits of driving in some commuter's eyes can and does outweigh the costs of commuting in other ways, they continue to use cars as their primary modes of transportation, and are subject to few market pressures to alter their behaviors. In fact, the federal government has occasionally offered incentives to use cars on a national level, to support the automobile industry. However, in some areas there has been a lobbying effort to increase the negative externalities of traffic congestion, such as imposing a commuter tax upon all incoming cars or increasing tolls in general for all drivers. The revenue is then used to improve the roads for pedestrians and cyclists and the general environment.

Increasing the opportunity costs to car drivers for the use of their vehicles can also help increase the negative incentives that they personally experience when driving cars. For example, blocking off certain lanes for the sole use of pedestrian traffic, placing limits on when cars can be on certain roads, or mandating that certain vehicles have one or more passengers all serves to make driving cars more inconvenient and riding public transportation more convenient.

Such taxes are often used as a way to correct negative externalities. One proposal to curb the effects of global warming, for example, is imposing a carbon tax upon nations who have profited greatly from the Industrial Revolution but have borne disproportionately fewer negative costs (110). Positive subsidies are another way to alter consumer behavior and reduce negative externalities, such as by 'paying' farmers not to overproduce crops. This is because overproduction can result in driving the price down of food so low that the entire agricultural sector of the economy is not profitable.

In this instance, by offering consumers who can document that they do not have cars tax breaks or discounts on public transportations, cities can discourage the use of cars. Cities can also improve bike lanes, the availability of convenient bus routes, and improve the security of public transportation to make the choice of public transport more amenable to consumers, to increase the positive benefits of making the choice of public transport, and to decrease the negative opportunity costs.