Tag Archives: negative externality

01.11.2013 | Negative Externalities: Who Causes Traffic Congestion?

Moving 5 MPH in rush hour traffic, do you ever think that you are the problem?

In rush hour traffic, we create an extra 4 second delay for each car behind us. Add it all together and you get 4.8 billion hours that people wasted during 2010 in traffic. For the average commuter, the annual total is 34 hours and 14 gallons of fuel.

Reasons for traffic congestion? We all work at approximately the same time every day and the richer we get, the more cars we can buy. As Brookings scholar Anthony Downs points out, “…traffic congestion is not caused by poor policy choices but rather, by economic success.”

Ironically, sometimes reducing congestion only winds up making it worse. Once you add to mass transit or road capacity, people who avoided rush hour join it. Congestion pricing programs? They are controversial and you need the right geography. Mass transit? People tend to combine rail lines with car commuting and home buying decisions that sometimes exacerbate the problem.

Consequently, we all continue creating the costs of traffic congestion that are called negative externalities. Rather like a factory’s air pollution can affect the health of people who have no connection to the factory, driving during rush hour imposes a cost on multiple unknown individuals. The 4.8 billion wasted hours from congestion is only a part of the cost.

Where does this leave us? Maybe traffic congestion is part of what we pay for economic growth.

Sources and Resources: Economist Timothy Taylor presents a wonderful lecture on traffic congestion in his Teaching Company course, “Unexpected Economics.” His lecture took me to this Washington Post article by Brookings scholar Anthony Downs and the Texas Transportation Institute (Texas A&M University) annual report on traffic congestion. Also, I always enjoy returning to sections of Traffic by Tom Vanderbilt. For this post I reread his chapter, “Why More Roads Lead to More Traffic (and What To Do About it)”

Congestion’s Impact From the Urban Mobility Report

From the 2011 Annual Urban Mobility Report

Posted by: adminEcon
Tags: congestion pricing, economic growth, mass transit, negative externality, traffic congestion
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12.18.2012 | Unexpected Economics: Hand Washing

Sometimes economics can involve a lot more than money.

My local hospital is engaged in a hand washing campaign. The problem is that physicians ignore the mandate, even more than nurses and other hospital personnel. Yes, a doctor is busy and a sink might not be nearby but studies show that even when hygiene is available, compliance is inadequate.

The economic problem? We have a negative externality. The doctor does not suffer. The parties from whom he acquired the bacteria on his hands were not affected. Instead, as with all negative externalities, uninvolved bystanders are experiencing the cost of the physicians’ behavior.

The economic solution: We have to increase the “cost” (defined economically as sacrifice) of the behavior.

At one LA hospital, it simply was a computer screen-saver on all hospital computers with petri dish pictures of bacteria cultures taken from physicians’ hands. The pictures were described as sufficiently disgusting that many more doctors complied.
A second solution at the LA hospital was to publicly identify non-washers during departmental meetings.
Elsewhere, a sign that read, “Hand Hygiene Prevents Patients from Catching Diseases” increased hand washing.

With all 3 approaches, the “cost” of non-compliance went up. People tend to do less of something when the cost is higher.

What did not work? When a hand washing “posse” randomly gave $10 Starbucks cards to doctors “caught” washing, they willingly accepted the reward but the impact was insufficient. Signs and emails, Purell hand disinfectant everywhere…little success.

Still though, getting people to wash their hands is only half of the hygiene problem. More tomorrow on why drying our hands also matters.

Sources and Resources: Freakonomics had a wonderful podcast on the hand washing problem, they also wrote about it here, and this NY Times article provides more details about relevant academic studies. In addition, I recommend this superb New Yorker article from Atul Gawande on using checklists in hospitals to minimize mistakes.

A Hand Washing Flash Mob

Note: The Title of this post was slightly edited.

Posted by: adminEcon
Tags: Atul Gawande, Cedars-Sinai Hospital, cost, Freakonomics, hand hygiene, hospital bacteria, negative externality, physician hand washing, regulation, sacrifice, The New Yorker
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11.01.2012 | A Ripple of Problems From Hurricane Sandy

Reading economist Arnold Kling’s explanation of why it will take a very long time to return to normal from Hurricane Sandy, I kept thinking of my own NJ disaster devastated neighborhood with downed trees on roads covered with branches, leaves and wires.

Kling: “You cannot solve problem A without first solving problem B, which requires solving problem C and so on.”

Me:

Problem A: Electricity needs to be restored.
Problem B: Utility wires and poles have to be removed from the road and replaced.
Problem C: NJ does not have enough crews to do all of the utility work.

Kling: But then, “because A is not working, problems X, Y and Z emerge.”

Me:

Problem X: Schools are closed.
Problem Y: Cell phones cannot be recharged at home.
Problem Z: Traffic lights do not work.

And then, as you can see, B and C, and X, Y, and Z each create a list of their own problems.

Kling: “…my guess is that it will take much longer to get back to normal than people are assuming. In fact, the process will take so long that in the meantime “normal” will have been redefined.”

As economists, what is our bottom line? Infrastructure interdependence takes us to many positive and negative externalities.

The entire Arnold Kling post is here.

Posted by: adminEcon
Tags: Arnold Kling, Electrical outage, information infrastructure, Interdependence, Natural Disasters, negative externality, positive externality, transportation infrastructure
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08.31.2012 | Sports Walks

Whenever I go to a Philly’s baseball game, the walk from the car to my seat takes awhile. Located in a “stand alone” sports complex off of Route 95, the stadium is one of several and the parking lots extend for acres.

I’ve discovered that there is a reason for my long walk.

It all relates to how the owners and occupants of sports arenas make money. First, it helps to use the arena a lot. If a football team has just 5 or 6 games a year, the arena could be in trouble unless they schedule other events like concerts. Baseball is a little better because you could have approximately 81 games a season. But still, fans have to spend money there. At a stadium like Fenway Park, because of its location, Red Sox fans can take their dollars outside to a local bar or restaurant.

And that takes me back to the Phillies and my long walks.

If a stadium is sufficiently isolated, you have to spend your food, drink and memorabilia money there. The “cost” in time and energy–the transaction cost–is just too great for fans to take their demand elsewhere. Consequently, as sports economist Roger Nolls says, “…the modern version of a baseball stadium essentially is a baseball field, the stands, a shopping center, and then acres of parking to make certain that no one can ever go anywhere else.”

An econtalk discussion with Roger Nolls started me thinking about how the acres of parking lots surrounding the Phillies’ arena complex affect where fans spend their money. Then, for more about stadium economics, I looked to this paper on sports facilities and their communities. And finally, although it is from 2008, this Forbes article says a lot when it discusses the most lucrative stadiums. (#1 was the Los Angeles Staples Center.) Also, here and here, there is more at econlife on the economic impracticalities of sports stadiums.

Posted by: adminEcon
Tags: Citizens Bank Park, demand, externalities, negative externality, Philadelphia Phillies, sports arenas, sports economics, team revenue, transaction cost
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08.14.2012 | More Soda Wars

If you lived in Richmond, California, would you vote yes or no for their proposed soda tax?

The tax is unusual because it does not charge people at the register. Instead, retailers would have to pay a license fee that is based on how many ounces of SSBs (sugar sweetened beverages) customers purchase. The city expects sellers to increase prices because of the fee.

City councilmen who like the proposal remind us that half of the children in Richmond are obese and that they can use the $3 million they project for sports fields, children’s diabetes treatment and nutrition education. An economist might add that the fee is Pigovian named after Arthur Pigou (1877-1959) who supported the concept because it discourages undesirable behavior and raises revenue.

On the other side, City Councilman Corky Boozé said it is unfair that the tax targets the poor. In a more affluent community, residents have the ability to avoid it by traveling elsewhere but not in Richmond where few people can afford cars. ”I eat sweet potato pie and candied yams,” he added, “And what about cupcakes? Are they going to tax them?” Predictably, one store owner worries that his business would suffer if he passes along the entire fee of 68 cents on a 2-liter drink to his customers.

Opponents also point out that the license fee is regressive. With a regressive tax or fee, the poor pay a higher percent of their income than those who earn more. Assume for example that 2 people both buy the same item and pay a $10 sales tax but one earns $100 a year and the other, $1000. The first individual is paying 10% of her income while for the second, it is 1%.

So many issues…

Do you believe the license fee is fair? Do you care if its impact is regressive? Do you like a Pigovian approach? Does it reflect an appropriate role for government?

In November, at the Richmond polls, how would you vote?

To read more about soda taxes, this NY Times update discusses New York City’s large size sugary beverage ban and here, here and here econlife looks at soda and fat taxes. For an academic approach, this Chicago Fed paper also focuses on the impact of soda taxes while details about the Richmond proposal are in this PBS interview, this NY Times article and a WSJ story.

Posted by: adminEcon
Tags: California, license fee, Michael Bloomberg, negative externality, NYC, Pigovian taxes, regressive taxation, Richmond, role of government, soda tax
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