When thinking about my favorite example of a negative externality, I tried to think of one that wasn't given in the text book. I chose the fast/processed food market. The problem of obesity has become a health epidemic in our country mostly as a result of the negative externality of the food industry.
I don't believe that this problem can be solved via negotiation (Coase Theorem). Many groups, including government agencies, have launched huge pro-health campaigns over the last decade or so in order to educate and persuade the public to make better decisions in regard to their diet choices. These efforts have made a difference by putting pressure on the food industry to reduce the negative impacts of their actions. However, it seems their efforts have done little to influence individuals to reduce the negative impacts to their bodies. We still have a very long way to go before we reach optimal quantity for maximizing benefits to society. I believe that market-based policies, namely a corrective tax, are the most effective way to influence people to make healthy diet decisions. The government could use the tax revenue to subsidize health insurance.
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