A Free rider!


Francois de La Rochefoucauld  

(taken from http://www.brainyquote.com)

I lived with my girlfriend in a small apartment in Bangkok. One day we decided to buy a big-screen television for our boring room, but  a problem arose because nobody wanted to pay for it even though the television would have made our life better.  In my opinion,, my girlfriend should have been the one paying for the TV because she watched TV series almost every day. However, in her opinion, I was the one who was super addicted to sport channels and should therefore cover the costs. In the end, neither of us wanted to pay for  the television and it was not purchased.

A television in our room is an example of  a “public good” which everybody can benefit from; in addition, this problem is an example of the economic concept of “a free rider” (one party wants to enjoy the benefits without paying the costs). According to intermediate economics, a free rider causes market failure; even if the total benefits are greater than the costs, a good project will not happen.

So this requires an independent party to collect money from those who benefit from the investment and use their money to pay for the public goods. A similar concept of “public good” can be applied to carbon tax.

Reducing carbon dioxide benefits the whole economy. According to World Resources Institute, stopping excessive CO2  emissions would have prevented $5 billion in livestock and crop loss during the  2011 Texas heat wave. Moreover, according to Ames Laboratory, reducing carbon dioxide emissions could save 64,000 premature deaths (including infants), 65,000 cases of chronic bronchitis and, 37 million lost or restricted work days.

As you can see, the benefit of reducing CO2  is huge but few people want to invest in it because of  the “free rider” problem. In the free rider’s opinion, if other people switch to low pollution methods or products,, he or she (the one who does not make the switch) will benefit from a good environment even if this person continues to contribute to high CO2  emissions. This mean that the free rider will reap the benefits while other people pay the cost.

However, not everyone wants to pay the cost (or at least change his or her behavior), so a good environment is much more difficult to achieve. Therefore, we may need a “middleman”, which is the government, to collect money from everyone through a carbon tax and invest this money in research and development of green technologies; this will force people to pay for the benefits.

This is why I support a carbon tax.


Photo: http://all4desktop.com/data_images/original/4166439-ghost-rider.jpg


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