A $5,000.00 Taxi Ride

by Elaine Schwartz    •    Apr 19, 2010    •    752 Views

Hearing that actor John Cleese took a Mercedes taxi from Oslo to Brussels for about $5,000 because the Icelandic volcano eruption prevented him from flying, an economist would say, “That is a positive externality.”

Economists see positive externalities wherever a transaction between two parties affects a third individual or group in some beneficial way. For Mr. Cleese, the transaction was between him and his airline while the taxi service experienced the positive externality.

Primarily, though, news articles are emphasizing the negative externalities where unrelated third parties are harmed by airline cancellations. Because cyclists destined for the Amstel Gold race in the Netherlands, runners in the Boston Marathon, and wrestlers who were supposed to be in Rutherford , N.J., are stranded, those events will lose some of their stars. Similarly, audiences are disappointed by musicians who missed a concert and businesses are compensating for absent workers. 

Other positive externalities are being felt by: ferries, NYC hotels, German trains.

Other negative externalities include: the money lost by merchants awaiting food and pharmaceutical shipments, vacation cancellations, missed FedEx shipments, delayed military supplies to Afghanistan.

Your additions?

The Economic Life

Traditionally, pollution is cited as a negative externality because the “cost” is experienced by anyone breathing nearby air. Some say that the recent recession was the negative externality created by the banking sector’s transactions (and again, Iceland?).

For a positive externality, a vaccine is a good example. Here, the transaction is between the physician and the patient. Then, though we all benefit when fewer people become ill. 

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