1. 8 October 2014
The Undercover Economist
Chapter-4
1
The Undercover Economist
-Tim Harford

2. 1 January 2015
The Undercover Economist
Chapter-4
2
Crosstown Traffic
Team-16
J.Jeyalakshmi
R.Rachel
T.Saravanan
M.Surya Prakash

3. 8 October 2014
The Undercover Economist
Chapter-4
3
Happy man’s 3 Wishes
Externality
Side effect to buy standers
Wish
Never to
upgrade
Computer
Software
Doctor gives
appropriate
treatment
Washington
Without
Pollution
Reality We have no
idea of
Doctor’s
treatment
EXTERNALITY

4. 1 January 2015
The Undercover Economist
Chapter-4
4
Prices-Marginal & Average
UNIVERSITY TRAFFIC CONGESTION
Better orange juice Better trains, cycles, routes,
pedestrian crossings
Scrapping upfront fees and
charging people for what they
drink
Scrapping upfront fees and
charging people for what they
drive

5. 1 January 2015
The Undercover Economist
Chapter-4
5
Pricing should reflect Damage
Externality charging needs to strike right
balance between pleasure and trouble
Urban Drive Vs Rural Drive
Making someone better off & No one worse
off
Marginal Price should reflect externality
cost

6. 1 January 2015
The Undercover Economist
Chapter-4
6
2 objections to Externality Charges
 Unfair tax aimed at poor drivers off the road
 Rich drivers afford to drive more and cause more environmental
damage
Poor people use bicycle ,
walk or take bus
Poor people drive a lot
pay large amount of tax
Congestion Charge is true Congestion Charge is
Useless

7. 1 January 2015
The Undercover Economist
Chapter-4
7
Moral high ground of Environmentalism
Pollution is illegal for poor and affordable
for rich
Why the rich should be allowed to pollute?
 People take advantage of externality charge
Partial response- rich do not pollute for fun
they do sensible trip

8. 1 January 2015
The Undercover Economist
Chapter-4
8
Alternatives to Congestion Charging

9. 1 January 2015
The Undercover Economist
Chapter-4
9
Is Life Worth??
 Ideal Externality Charge addresses all the real external and
only the real external charges
 Drivers---------- Charged---------- Densely populated area
Drivers---------- Charged---------- For emitted pollutants in
every trip
 Computers in car- Measure – Congestion, Pollution
Cannot Measure – People’s time
 Making Decision putting Value on our environment
Eg: not buying smoke alarm-increasing chances to die

10. 1 January 2015
The Undercover Economist
Chapter-4
10
Is Life Worth?
 nterest.

11. 1 January 2015
The Undercover Economist
Chapter-4
11
Is Life Worth?
Preference is not just deduced but actually
defined by choices
People Prefer on HOUSE PRICE &
WAGES
Nobody has best interest at heart quite as
much as you do yourself !!!

12. 1 January 2015
The Undercover Economist
Chapter-4
12
New Orleans Effect
Congestion Charging change
small decisions
 Externality Pricing attacks
the problem but makes no
assumption about the solution
Camelback House

13. 1 January 2015
The Undercover Economist
Chapter-4
13
Battling Pollution-Sulphur
sulphur emission sulphur scrubber
Power Generators initial resistance arguing
Sulphur Scrubbers are expensive
EPA auctions for right to emit Sulphur dioxide

14. 1 January 2015
The Undercover Economist
Chapter-4
14
Battling Pollution-Sulphur Contd.
Companies installed willingly rather than
buying permits
Carbon Emission – Similar auction
recommended by economists

15. 1 January 2015
The Undercover Economist
Chapter-4
15
Handling of Externalities
Tree Plantation- Neutralization-Not certain
of charges
Positive Externality – Beautifying apartment
bringing pleasure to streets – no reward
Negative Externality – paying for tax
pollutant
 Too much of Positive Externality-
eg:Tree&Wall , I become richer/ Neighbor
becomes richer