Chapter 10 Reflections- Externalities

Negative Externality

What is a negative externality? It is an action of a product on consumers that imposes a negative side effect on a third party. Also known as a "social cost."

Examples would be:
 A natural hot spring where people like to relax and enjoy the benefits of the water but those who live close by have to smell the "rotten egg" or sulfur smell that is emitted from the water. 

The hot springs pool in Glenwood, Colorado. 

An aluminum factory that emits pollution. Smoke from the factory is emitted into the air. People have to breath the air, therefore there is a health risk to those who breath the air.

 

My favorite example of a negative externality is noise pollution. Several examples come to mind:

1.  Living near an airport and having to deal with the constant noise of the airplanes flying over homes.
2. Living near a concert arena like the Pepsi Center or a sports stadium like Coors Field where you have to deal with the traffic noise and the roar of the crowds.
3. Living near an interstate where you have to deal with the sounds of traffic, horns, accidents, and sirens.
4. A neighbor throws parties on a regular basis and has no regard for those around them and plays their music at a ridiculously high volume. 

Could the problem be solved via negotiation (Coase Theorem)?  How or why not?

I think noise pollution is absolutely one of those negative externalities that can be solved by negotiations in most instances. Take for instance my example of the airport. When Denver International Airport was in its beginning stages of development it had been decided that because there had been so many noise complaints because of Stapleton Airport that the new airport would be built 23 miles from downtown Denver. It is also positioned so far from downtown because it gives the airport lots of room to expand and grow, unlike so many busy metropolitan airports like LAX or O'Hare. 

The neighbor who throws noisy parties can be asked by surrounding neighbors to please turn down the music because it's creating a disturbance or if these attempts fail then maybe the local police department can drop by and politely negotiate with that noisy neighbor to turn the music down!