Institute of Rural Management Anand

PGDM-RM40 – Term IV – Mid Term Examination

< CAC>
<17/09/2020>
<Prashant Kumar, P40193>

1.. (a) Air is common good which is non excludable while its rival because one person polluting
the clean air would reduce the chance of other person getting to use the clean air. Hence everyone
has equal access to resource but managing the resource becomes difficult. Private players won’t
manage the resource due to non-incentive of price feature even its difficult for government to
monitor due to high monitoring cost which increases the transaction cost for government. Hence
its really difficult to control the air pollution from occurring. Hence rivalry makes it difficult. It
can only be implemented or reduced by help of collective action.

(b) The “cap and trade” market is type of pollution permit market where a upper limit or can say
as cap on certain types of emission and pollution is fixed for companies while on the other hand
companies are permitted to sell or can say trade the remaining portion of their limit of usage to
other companies who are struggling to remain within the boundary of fixed quantity of pollution.
In this case quantity of pollution is fixed while price of pollution is dependent on price of carbon
in credit market. This reduces the incentive for carbon saving as everyone is utilising their quota
also low price of carbon and limit of emission is leading to exploitation. Hence collective action
is needed because

• All countries should come together collectively to decide on the upper limit or cap and other
trade issues related to carbon market. In India CDM is doing this task.
• The monitoring cost on part of individual is very high due to high transaction cost hence
collective action is needed.
• In order to bring transparency and comparability among the nation to enhance the mutual
understanding along with recognition of others efforts and ensuring public accountability as
well.

(c ) In an environment movement the interdependence decisions of members joining is sequential

rather than simultaneous. The production function has increasing marginal rate of returns where
successive contributions generate more payoff and each contribution is making the next one more
likely to undertake. The increasing returns with regards towards the profitability of public goods
would enhance the collective action. But the initial losses are very high hence after long start-up
costs have been undertaken then only subsequent bigger returns are able to make big impact.

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 Institute of Rural Management Anand
PGDM-RM40 – Term IV – Mid Term Examination
< CAC>
<17/09/2020>
<Prashant Kumar, P40193>

Hence, someone has to bear the total net loss equal to critical mass after which the net loss starts
reducing with incremental resource contributions. Critical mass is likely to have relatively small
subset of large pool of interested group for environment movements. Hence we need USA and
other rich countries are small core of interested and resourceful entity which can begin the
contribution towards the action and gradually the less resourceful members can join in order to
reach full potentials.

Withdrawal of USA form Paris agreement is big setback because it has high resource
availability which would be essentials in starting phase of environment movement due to high
cost involved in earlier phase. The initiative would survive only if it goes past the critical mass
where losses are very high. Hence US funding’s will ultimately impact the initiative and decrease
the society chances of reaching the Paris agreement goals. While economically small countries
do not have that large contribution to continue without earning any gain, hence requiring large
resourceful player s to help in initiatives.

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 Institute of Rural Management Anand
PGDM-RM40 – Term IV – Mid Term Examination
< CAC>
<17/09/2020>
<Prashant Kumar, P40193>

2. (a) The effort towards containment of Covid-19 pandemic is Public good. It is being done for
everyone across India. Hence it is non excludable as we cannot make it available to only section
of people we have to include everyone. It is also non-rival because the right of one person being
contained soes not take away the right of others from being contained from this pandemic. Hence
we can be sure that free riding would always take place in case of public good which is even
visible here as people has not been able to access the cost associated with this containment of
covid-19 pandemic.

(b). In case of Covid-19 there is negative externalities associated because one person getting
affected would impact large section of population and surroundings which cannot be accessed by
people leading to overall market failure. Here the externalities are significant hence government
is using public policy of command and control to implement lockdown and restriction through
SOPs for containing COVID-19 pandemic. In command and control government lays down
required certain behaviours and forbids certain behaviours which is similar to the steps taken by
government now in pandemic.

( c ) People are able to flout the SOP very easily after unlocking started because in order to
monitor their activities government has to incur high monitoring cost which would not be feasible
because the government use taxpayers money to impend which has vastly depleted in COVID
times. Even the government does not have incentive to invest because of commitment problems
as it is not beneficial for government themselves while detrimental for society as would lead to
increase spread of COVID-19. Instead government would spend more on healthcare which would
directly benefit the government. The transaction cost of controlling this pandemic is also very
high. Hence we need collective action to control the monitoring cost of implementing the SOP
strictly across people.

The policies implemented by government in general is command and control policy which
need to be monitored extensively to check weather the SOP laid down the government ahs been
implemented properly or not. Hence the monitoring need high transaction cost as it has to be
implemented for whole population. This makes this policy inefficient and not feasible in long
run.

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 Institute of Rural Management Anand
PGDM-RM40 – Term IV – Mid Term Examination
< CAC>
<17/09/2020>
<Prashant Kumar, P40193>

(d) In order to improve the compliance of standard operating procedure government needs to
undertake following actions

• Distribution of power – Government should resolve its commitment issue by allowing

mutual cooperation with the local bodies, NGO, SHG, trader etc. to undertake action in
their purview to make everyone follow the SOP laid down.
• Redistribution of resources - Government should provide equitable opportunities and
resource allocation in order to enhance their livelihood. Once the enhancement is
perceived by people their benefit would increase more over cost of flouting SOP.
Atmanirbhar initiative by government is one of such steps.
• Induce social sanction – Government can induce social sanction against the people
flouting SOP. This would be implemented across the region to make person himself feel
left out. Example in a state people who are not wearing mark is asked to take photo with
banner of “I am proud citizen”.
• Use of social media – We can take the help of social media which would reduce the cost
and help in achieving the critical mass faster also help in snowballing to attract more and
more people towards the policy and help reduce people flouting SOP.
• Institutionalization of rules – Stringent implementation of rules can be done which would
be led to higher monitoring cost in initial phase, but gradually as the benefit obtained by
not breaking rules would higher than fines paid due to flouting, would constrain people
from flouting.
• Collective action - Government can undertake mutual monitoring as cost is really high
on part of government for monitoring hence collective action would help in reducing cost
and implementation would be efficient.
• Government can use the persuasive power of leaders and people who can help in initial
phase of the programs. For example, Anna Hazer movements was initially led by one
person and gradually as critical mass was reached others started to joining seeing
incremental returns. Hence in this case also people can see incremental returns
compliance and association would also increase against COVID pandemics.

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