Microeconomics Case Study

Externalities: Justification for Public Goods?

OR

Abstract:
The case gives an insight into the various market and non-market based ways of dealing with negative and positive externalities with reference to plastic and the river Ganges, respectively. With plastic becoming part and parcel of modern lifestyle, its negative externalities are ubiquitous though not obvious since these affect the 'third parties'. The commonly acceptable alternative, paper is also exposed to pose no less, if not more, negative externalities than plastic does. The Ganges, one of the sacred rivers of India, is a reservoir of numerous positive externalities. However, there is hardly any private initiative towards abatement of the pollution in the Ganges. The private individuals are not keen to undertake such activities, because the positive externalities oozing from the cleaning of the Ganges involves involuntary exchange of external benefits against which there is no market means of extracting compensation from the beneficiaries. Therefore, in the wider public interest, the Indian Government has taken the role of the saviour of the Ganges that exhibits the characteristics of a public good with the problem of 'free rider' syndrome.

Pedagogical Objectives:

• To understand the causes of market failure
• To understand the role of government in correcting externalities
• To understand the role of government in provision of public goods.

Keywords : Externalities, Positive Externalities, Negative Externalities, Goods, Classification of Goods, Public Goods, Private Goods, Public Goods Vs Private Goods, Government Intervention and Externalities, Private Cost and Social Cost, Private Benefit and Social Benefit, Free Rider Problem, Managerial Economics, Microeconomics, Economics for Business, Business Economics, Economics for Managers, Paul Samuelson