Posts Tagged ‘externalities’

There has been a disturbing trend in the past decade for parents in the UK to refuse vaccinating their young children with the Measles Mumps and Rubella (MMR) vaccine. This has been due to the (now debunked[1, 2]) scare following a paper in The Lancet by Andrew Wakefield that claimed that MMR Jabs could be responsible for increasing the likelihood of children developing autism.

Unfortunately, despite the findings that Wakefield and his team had manipulated data, the striking off of Wakefield from the medical register and the full retraction of The Lancet paper, some parents continue to refuse vaccinating their children. The refusal of parents to vaccinate their kids is not the end result of this story, and their (unfortunate) children were not the only victims.

This is because the MMR Vaccine is not 100% effective [3] and is not given to everyone, namely, not to vulnerable parts of the population, including babies less than 1 year old and children who have a compromised immune system (for example those with AIDS or receiving chemotherapy). Normally, with high rates of vaccinations, these issues would not be a problem, as the ‘herd immunity’ would provide them with protection – the more people immune to infection, the less chance there is for someone without immunisation to come in contact with the infection. But as MMR vaccinations fell below the measles herd immunity threshold (94% [4, 5]) outbreaks of measles started occurring, affecting those children whose parents chose not to vaccinate them, but also those whose vaccinations had not been effective and the vulnerable population. In 2008, measles was declared to be endemic again in the UK after a break of 14 years [6] and a measles outbreak was recently declared in Merseyside [7]. Additionally, a recent story in the US paper USA Today reported that travellers from the US to, among other destinations, Western Europe were bringing back measles and infecting unvaccinated populations in the US [8].

Vaccinations are one of the most cited examples of ‘positive externalities’ – an idea in economics that in some circumstances society experiences benefits greater than the benefits received by individuals making the decision. There are also negative externalities – where society experiences costs greater than the costs incurred by individuals making the decision.

The MMR vaccination can be seen as both a positive and a negative externality – those who have received the jab decrease the possibility of outbreaks and therefore the possibility of you or I contracting measles (or mumps or rubella). This is a benefit for us that probably wasn’t taken into account by those who received their vaccination, so it is a positive externality. But we can also look at the lack of vaccination as a negative externality – as MMR jabs have become the norm, those who haven’t been vaccinated increase the chance of outbreaks and affect those who were unable to receive the vaccination or for whom the vaccination wasn’t effective.  This is an unintended and unaccounted consequence of the decision of parents to refuse vaccination for their children.

Another economic idea that is relevant here is that of the ‘public good’ – a good that is non-rival and non-excludable. This means that someone can consume the good without reducing the ability of anybody else to consume the good, and that it is not possible to exclude anyone from consuming the good. Herd immunization (and individual immunizations to a lesser extent) can be seen as a public good – everybody benefits from higher immunization rates and my enjoyment of the benefit doesn’t decrease your enjoyment of the benefit.

These ideas of externalities and public goods are highly relevant to environmental economics and are used on a daily basis in our work. Clean air and water and a stable climate are examples of public goods while pollution and carbon emissions are negative externalities that affect these public goods (public bads if you like). Environmental economists try to help decision makers take externalities into account through identifying and valuing externalities and contributing to design policies that make these externalities be explicitly taken into account in prices and behaviours (what we call ‘internalised’), such as a carbon or pollution tax or market-based instruments such as the sulphur and carbon cap and trade markets.


[1] The Lancet – Retraction – Ileal-lymphoid-nodular hyperplasia, non-specific colitis, and pervasive developmental disorder in children

[2] Wikipedia – MMR Vaccine controversy

[3] Bupa – Measles, Mumps and Rubella (MMR) Vaccine

[4] Wikipedia – Herd immunity

[5] BBC News – Measles outbreak ‘worst in years’

[6] Health Protection Report – Confirmed Measles cases in England and Wales – an update

[7] Merseyside measles outbreak declared

[8] USA Today – Unvaccinated behind largest U.S. measles outbreak in years

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The title of this post is the slogan of a campaign run by one of the speakers at the 3rd World Environment Conference – 2010: Year of China’s Green Economy. The conference was in Beijing last week and I was there to talk about how economic analysis can help solve environmental problems. Flying to Beijing for a 3 day conference and 3 day sightseeing trip was not low carbon of me but at least my flight emissions are offset as part of eftec’s annual carbon offsetting scheme. 

 The key topics covered at the conference included low-carbon technologies in every facet of the economy but in particular renewable energy. While the topics were of global scale (and hence the ‘world’ in the title of the conference), the delegates were mostly mayors from the provinces of China (remember how big China and its provinces are and you can gather the importance of having the mayors attend a conference on the environment), state owned enterprises and private companies from the emerging green industries.

China is a place of contradictions at a greater scale than most places and the conference was no exception. There were many encouraging speeches: not only talking about why a low carbon future for China is the only choice but also how such a future can be achieved.  Amongst many other actions, the following were most poignant:

–          Government leadership is needed

–          Systems (including stakeholder awareness) need to be improved

–          Experiences with different technologies and environmental policies from around the world and within  China need to be disseminated, and

–          International cooperation is crucial.

There were indeed many international speakers present, too. The speech by Mohamed Aslam. the Minister of Environment, Transport and Housing of the Maldives, was particularly inspiring. He re-stated Maldive’s target of becoming carbon neutral by 2020 and said they did not set this target because they have the technology, know-how and finance to achieve it but because it is the right thing to do. In addition, he stated that the announcement of this target had attracted many offers of help (technical and financial) that would not have come forward otherwise. Considering that sea level rise is already affecting the Maldives (to see a short BBC documentary – click here) and will threaten the country’s existence in future, it was not surprising to see their Minister at a conference in China – the highest carbon emitter.  But his speech was genuine and refreshing rather than overtly political and stale. 

Going back to the contradictions – some presentations were less progressive…like defending the use of coal and oil…because they are cheaper and because developed countries had ‘developed first and cleaned up later and China has the right to do so’. Why countries insist on repeating each other’s mistakes I don’t understand…worse still why they think they can continue to make decisions based on financial costs and benefits alone simply escapes me!

So, being the Daisy that I am, I said a few words on the subject…when compared on the basis of market price alone coal and oil are of course cheaper than renewable energy sources…first, the former two are generally subsidised while the latter are not. Secondly, the environmental costs of the fossil fuel options and the environmental benefit of the renewables (avoided cost of fossil fuels) are not reflected in prices. If they were, the balance is almost always likely to be changed in favour of the renewables.

Environmental costs are not trivial and no country can afford to postpone them – not because of some moral responsibility to future generations but because they are real, they occur now and people are paying for them. Those present only had to step outside the conference hall to see what I meant. Beijing is mostly covered in a thick smog – a mix of dust from the advancing Gobi desert and air pollution from coal-burning power stations, industries and of course the ever increasing traffic. The price of fuel may be cheap but the cost of the effects of this air pollution on human and animal health, agricultural productivity, forest growth and so on is expensive.

Air pollution is not the only problem, floods in southern China over the last month or so have also had very high costs in terms of human lives, damage repair and loss of environmental and built assets.

There is, however, good news too. At least in Beijing, they seem to have part of the waste management pretty much under control through the good old informal sector. All litter bins have a ‘recyclable’ and ‘other waste’ component and most bins are checked every ten minutes or so by (mostly old) men or women on bikes collecting in particular plastic bottles. I didn’t check how much they got paid but clearly the price is worth the hard work and the supply of material to be recycled is – unfortunately – unending with millions of people using plastic bottles at what seems like an increasing rate.  

To finish on a positive note – the Chinese leadership is incredibly fast and efficient once they make a decision. Conferences like this one are very useful in disseminating positive experiences from the world and from within China to assist the leadership in making good policy decisions. I look forward to seeing how this conference affects the environmental policy in China in the very near future.

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Some time ago Betsy, Elsea, and Daisy went for a little walk between Grosvenor square and Parliament square.  Along this walk we saw many wonderful and amazing things,

It was good to see cousin Fred here, although we don’t necessarily agree with his views

however surely the most amazing of all to us economist cows was the following sign:

Taking a train from London to Aberdeen would take you 7 hours.  Taking a plane from London to Aberdeen would take you 1.75 hours.  I don’t know about you, but I would hate to see this clearly quicker option disappear completely.

I do not disagree that the amount of domestic aviation should be decreased, but calling for a complete ban on domestic flights seems like a boneheaded idea because it takes away the consumer’s choice of a faster mode of travel.  It would be like saying we should ban cars and trains and go back to the good old days of the slower, but emissionless, horse and carriage  – in fact even these are not emissionless (like cows, horses have emissions too!).

So how do we propose to lower the amount of domestic flights without enacting a command and control type ban on them?  It is quite simple really.  Let’s pretend that you had to travel from London to Aberdeen and you had, for simplicity’s sake, just two choices: the plane or the train.  How would you decide which mode of transport to take?

Obviously the first factor you would look at, apart from the time, is the monetary cost of each mode of transport.  Then you would go into the comfort, the accessibility of each mode of transport, oh, and if you care about the environment, the carbon footprint.

Obviously there are many people out there who value their time over their carbon footprint and the difference in costs of the two modes of transport.  However, what if we made that difference in the costs of the two modes of transport much more?  The more expensive a particular mode of transport is, the less the demand for it will be and vice versa… hence the shift from train to plane once cheaper domestic flights were introduced.

But how can we make flying more expensive than going with train and by how much?  An extra tax, say on aviation fuel, could be one option, where tax would be equal to the cost of the carbon footprint.  Environmental economists see such a tax as a way for the price of flying to reflect all of its cost and making the passengers pay for the environmental damage as well as other costs.  This is a way of ensuring that passengers factor in their carbon footprint into the decision on which mode of transport they wanted to take in case they had not already taken it into account.

There are of course other ways of reflecting the carbon cost of flying in airway bills. Including aviation in carbon trading is another – which incorporates the environmental costs through a different mechanism. For more information on including aviation in carbon trading, see the Committee on Climate Change’s advice to the UK government on reducing global aviation emissions.

Either way, the aim is to make flying a much more expensive choice, hence while it would still be available, only people who value their time a lot more would decide to take the plane.

Oh, and much further along the route we came across these people:

We like this option too!

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