What forms of government intervention might help to correct the market failure from negative

externalities?

To many economists interested in environmental problems the key is to internalise external

costs and benefits to ensure that those who create the externalities include them when making
decisions.

Pollution Taxes

 One common approach to adjust for externalities is to tax those who create negative
externalities.
 This is known as "making the polluter pay".
 Introducing a tax increases the private cost of consumption or production and ought to
reduce demand and output for the good that is creating the externality.
 Some economists argue that the revenue from pollution taxes should be 'ring-fenced' and
allocated to projects that protect or enhance our environment.
 For example, the money raised from a congestion charge on vehicles entering busy
urban roads, might be allocated towards improving mass transport services; or the
revenue from higher taxes on cigarettes might be used to fund better health care
programmes.

Examples of Environmental Taxes include:

1. The Landfill Tax - this tax aims to encourage producers to produce less waste and to
recover more value from waste, for example through recycling or composting and to use
environmentally friendly methods of waste disposal
2. The Congestion Charge: -this is a high profile environmental charge introduced in
February 2003. It is designed to cut traffic congestion in inner-London by charging
motorists £8 per day to enter the central charging zone
3. Plastic Bag Tax: A tax on plastic bags has not been introduced into England and Wales
4. Vehicle excise duty (VED): VED starts from a theoretical 'nil' rate and accelerating up
depending on the carbon emissions of the vehicle

Transport system congestion

Ever since the incumbent government has taken the

charge in 2014, the focus is on developing the urban and
rural infrastructure, improving manufacturing facilities,
implementing favorable policies and inviting more Foreign
Direct Investments (FDI).
One major component of Smart Cities initiative is creating
and developing an efficient urban mobility and public
transport system that provides a variety of transport
options. Towards this objective, recently government has
approved several large projects within the ambit of the urban
infrastructure development, especially in road transportation.
Close to 90 projects in the roads and flyover development
segment, around 10 in Mass Rapid Transport (MRT), some
in intelligent traffic management and integrated multi-
modal transport have already been initiated. The envisaged
smart transportation and smart infrastructure would further
increase the econ

Smart Automobiles

Smart Fuels and Better Emission Standards alternative fuels, emission permits

road transport

assenger information systems

15
Real-time parking management / Multi level parking
15
Smart cards
16
Electronic toll collection
16
Smart parking assist
16
Automated Speed Enforcement
17
Airport Surveillance & Safety Equipment
17
Radio Frequency Identification (RFID) in Freight
transportation

Government in scenior citizens

owards
achievement of this directive, the policy visualises that the
s
tate
s
will extend
their support for senior citizens living below
the
poverty line in urban and rural
areas
and ensure
their
social security, hea
lthcare, shel
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welfare
.
1. Income security: Indira Gandhi National Old Age Pension Scheme

22. National Policy on

Senior Citizens
2011
6
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Loans at reasonable rates o
f Interest would be offered to s
enior
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itizens to
start small business
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. Microfinance for
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itizens would be supported
through suitable guidelines issued by th
e Reserve Bank o

The goal
w
ould
be good
,
affordable he
alth service, heavily subsidi
z
ed for the poor and a
graded system of user charges for others. It
would
have a judicious mix of
public health services, health insurance, health services provided by
not
-
for
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, and private medical car
tringen
t punishment for abuse
of the elderly
.
24.
A
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and crime
s
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enior
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itizens especially widows
and
those
living alone and disabled would be tackled

promote
measures
to create avenues
for continuity in
employment and/or post retirement opportunities.
33.
Directorate of Employment
would be created
to enable seniors
find re
-
employment.
34.
The age of retirement would be reviewed
by th

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India

Modi government drafts law to tame India's

chaotic traffic
Measures include a points system to punish repeat offenders
and stiffer penalties for speeding and failure to stop at red
lights
Jason Burke in Delhi

Sun 14 Sep 2014 16.25 BST First published on Sun 14 Sep 2014 16.25 BST

Traffic in Delhi, India. Photograph: Alamy

For decades, the chaotic melée on India's roads has been held up as a point of pride by locals
who argued that, though unnerving, the free-for-all worked in a way that foreign practices such
as staying in your lane or using your mirrors would not.
Now the government of Narendra Modi, who won a landslide victory in May, hopes to tame the
rickshaws, elephants, trucks, luxury SUVs, bicycles, camels, five-seater motorbikes, cows and
buses that battle it out each day on the country's highways.

"Providing safe, efficient, cost-effective and faster transport across the country is our mission,"
said Nitin Gadkari, the roads minister, as he launched the policy.

Advertisement

The objective is an ambitious one. Around 150,000 people a year die on India's roads, with
hundreds of thousands more injured in around half a million recorded accidents.

There is no ongoing system of verification of vehicle maintenance, no central national agency of

road safety, and a culture of flouting the law. A huge surge in car ownership has not been
matched by investment in roads, safety education, monitoring or policing.

The new bill aims to save 200,000 lives over five years and boost economic development, which
has flagged in recent years.

The World Health Organisation has said the number of deaths and injuries on the roads in India
costs the country around three percentage points of GDP growth annually. Transport ministry
officials put the figure higher.

Modi's government has disappointed some observers, particularly in the business community, for
failing to pass "big bang" reforms immediately. BJP officials say they are taking a "softly softly"
approach with measures aimed at "putting the house in order, not burning it down".

One spur to the reform was the death of a minister in a car crash in Delhi days after the election
win.

The draft law was posted online by the road transport ministry at the weekend with a request for
user comments.

It includes radical measures such as a points system that could lead to repeat offenders losing
their licenses, and a £3,000 fine in the event of a driver killing a child. Penalties for speeding,
drunk-driving and failing to stop at red lights will be increased dramatically.

Drivers in Delhi welcomed the plan. Ashutosh Bhardwaj, a sales executive from the satellite city
of Gurgaon, said it might curb the taxi drivers who ferry call centre staff from home to office at
breakneck speed. "They are the real menace. They are racing their cars, not driving them in
proper, sober fashion," he said.

Preeti Jha, 28, a hawker and migrant from the poor state of Bihar, said it was the poor who
suffered most as they were most likely to be on vulnerable bicycles, motorbikes or overcrowded,
badly maintained private buses.
Though authorities across the emerging world face similar challenges in controlling traffic, some
provisions in the draft law reveal a range of problems in India not always faced elsewhere.

School bus drivers found to be over the limit will face three years in jail, off-duty police officials
will lose any immunity and emergency vehicles such as ambulances and fire engines will be
given a right of way over vehicles carrying dignitaries.

The real problem, some specialists say, is corruption. Driving licences can be bought easily and
the police are notoriously hungry for bribes from errant motorists. Police are undermanned and
poorly trained. It is well-known in Delhi, a city of 17 million people, that there are no traffic
police deployed between midnight and dawn.

Prof N Ranganathan, an urban transport specialist, said enforcement was not necessary, "if you
have good engineering and education". "You will find this working fine across the world. Before
doing the first two Es – engineering and education – we are just talking about enforcement,"
Ranganathan told the Times of India newspaper.

According to the WHO, about 1.24 million people die each year on the world's roads and
between 20 and 50 million sustain non-fatal injuries.

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MORE

THE BLOG
09/02/2017 12:28 PM IST | Updated 10/02/2017 9:22 AM IST

4 Types Of Market Failures That Require

Government Intervention
Rupak De Chowdhuri / Reuters

"There are two things you don't want to see being made—sausage and legislation. They're both
messy. Often you have no idea what's in the end product. And what goes into the process is, well,
not for the faint-hearted."— Otto Van Bismarck

Such sayings/idioms, even though amusing on the surface, betray an undeniable and fundamental
fault with how we as governments continue to create policies and govern. The problems facing
our policymakers and the potential solutions are well-known, although as they say, the devil lies
in the implementation; more often than not the real quagmire of all policy and governance
failures can be traced to the foundational issue of improper implementation.

There are three fundamental questions to be asked before the process of policymaking initiates:

1. When is government intervention needed?

2. How to navigate the terrain of political economy?

3. How to improve state capacity to execute policies and schemes?

When is government intervention needed?

The government is the entity that wields the maximum power to pursue multiple objectives for
the welfare of society. No one doubts the importance of a well-oiled state machinery; however,
unbridled state intervention raises reasonable doubts on its need and requirement in the various
situations concerned.

Four market failure categories cover the areas where intervention by the government is required
and the provision of services and goods cannot be left to the forces of free markets.
In the realm of economics, there exists the concept of "laissez faire". In plain speak, laissez faire
is a system where the incentives of private players to provide services are not shaped by
government interventions and all economic activities can take place without being encumbered
by coercive measures such as tariffs, subsidies and taxes. Laissez faire was defined by the
following three axioms that were proposed by economist Adam Smith in 1776:

 The Invisible Hand: The notion that an individual's efforts to maximise her own gains in
a free market benefits society even when her ambitions have no benevolent intentions.
 Advantage of Competition: Natural competition amongst private entities, instead of
closely controlled state companies and organisations, fosters better and cheaper product
development for the end consumer
 Dynamics of Supply and Demand: The producers of good in a free market will produce
enough to meet the demands of the consumers and this potential equilibrium will
rationalise and modulate the prices in an economy.

The idea of laissez faire is a powerful one; one that injects innovation, energy and dynamism
into an economy for it prevents the meddlesome state from resorting to desultory means of
imposing and structuring licensing paraphernalia, like the Fabianis-tic policies that India
witnessed during the license-raj era and which looks set to return with the inefficacious
demonetisation rollout. However, as beautiful a concept laissez faire is, its limitations and
failures in fostering crony capitalism and in imposing a distinct lack of focus on the welfare of
the underprivileged are well documented and tested.

This then begs the fundamental question of when the state should react and respond to these
failures of the free market. These market failures can be, summarily, divided into four categories:

1. Negative externalities identified by the exploitation of the commons

A negative externality is the cost borne by a tertiary player in the system due to the actions of the
primary and secondary players. Let us consider the case of people suffering from respiratory
diseases due to pollution spewing vehicles on the roads:

 Assuming that all the people who are using vehicles to aid their transportation process are
within limits of plausible rationality; each person then seeks to maximise her benefits
associated with travelling in a private vehicle. These benefits include: comfort, savings
on account of time, status in the society, among other things.
 Given that these people are rational beings, each person performs the following mental
calculation: Is the usage of a vehicle for the purposes of transportation benefitting me?
 She generally has the following answers in mind: The positive component is the array of
benefits associated with usage of a vehicle; The negative component is the pollution
caused due to the vehicle.
 However, the person justifies her usage of a vehicle by way of the argument that the
negative externalities produced due to her actions are shared amongst different
stakeholders, whilst the positive benefits are accrued by her only.
Such instances which involve exploitation of the commons require immediate interventions by
the state.

The road rationing experiment tried out by the Delhi government to reduce air pollution is an
example of a relatively successful state intervention.

2. Market forces of capitalism resulting in concentration of power

As described above, the single-minded pursuance of laissez faire often gives rise to crony
capitalism which is usually identified by monopolistic and oligopolistic markets.

This gives rise to a system where there is a concentration of power among a few instead of
dispersion of power in the hands of many. This results in distortions in the market economy,
causing exploitation of the needy and the poor.

This again requires intervention by the state to regulate markets by way of rules, laws and
policies which aim to safeguard the interests of the people.

Adnan Abidi r/ Reuters

3. Asymmetry of information
Markets usually produce the end consumers with varied choices of products and services, whose
quality and/or reputation is hard to know, in advance.

This results in information asymmetries where the consumer goes in blind, oblivious to the
quality of the service that he is utilising, argued George Akerlof. Example: a patient visits a
doctor for a routine examination, but he has no knowledge of the reputation and credibility of his
professional medical practice

The government needs to remove these asymmetries and ensure proper information
dissemination to the citizens on the availability of cogent information. Example: The government
of India, through the Medical Council of India (MCI) empanels doctors and medical institutions
after a rigorous vetting process, which signals the credibility of the practitioner concerned to the
citizen.

4. Provisos for non-rival and non-excludable goods

In the field of micro-economics, the following matrix of the categories of service provided in a
market is followed:

Pranav Jain

Thus, it is incumbent upon the government to provide for and intervene in systems and market
failures which involve non-rival and non-excludable goods

***

With this we have answered our question of: When is government intervention needed? These
four market failure categories comprehensively cover the areas where intervention by the
government is required and the provision of services and goods cannot be left to the forces of
free markets.

The second article of this series will answer the questions of how to navigate the terrain of
political economy and how to improve state capacity to execute policies and schemes. The third
article will look at potential solutions to simplify and strengthen the supply chain of ideation,
policy creation and its cogent implementation.

Best Forms of Self Defence Techniques

MORE:adam smithCapitalismgovernancegovernment interventionlaissez-faire
Popular In the Community

When it Comes to Reducing Car Congestion,

India’s Cities Can Learn from its Businesses
by Anjali Mahendra and Pawan Mulukutla - June 03, 2015

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The Indian city of Bangalore is engaging the private sector to shift how employees commute to
work, reducing traffic congestion and costs for everyone. Photo by Miroslav Čuljat/Flickr.

This blog post was originally published for TheCityFix on June 3, 2015.

A century of car-centric urban development has left our cities polluted, congested, and searching
for sustainable solutions. Transport Demand Management (TDM) strategies can provide these
solutions by combining public policy and private sector innovation to reverse over-reliance on
private cars. The Moving Beyond Cars series—exclusive to TheCityFix and WRI Insights—offers
a global tour of TDM solutions in Brazil, China, India, and Mexico, providing lessons in how
cities can curb car culture to make sustainable transport a reality.

The number of cars on India’s roads has been doubling every 8-10 years—and it’s costing the
country.A WHO study from 2014 found that 13 of the world’s 20 most polluted cities are in
India. The country experiences 120,000 deaths per year due to traffic fatalities, more than any
other country. And traffic congestion in Bangalore alone costs the city approximately 5 percent
of its economic output.

City governments in India are still focused on investing in road expansions and overpass
construction projects rather than curbing car dependence and improving public transport
services. Instead of waiting for local governments to act, a handful of Indian businesses are
taking the initiative to implement transport demand management (TDM) strategies, improving
the productivity of their employees and reducing the social costs of car congestion.

TDM Initiatives Reduce Costs for Indian Businesses and Employees

Employer-initiated TDM strategies have been especially common in the information technology
(IT) sector, because most IT employees in India use private cars to commute to and from work.
These strategies have been relatively easy to implement given the availability of information—
such as employees’ origins and destinations, duration, and frequency of trips—for designing
optimal transit and carpool routes.

Some initiatives have included providing employees with commuter subsidies for public
transport or carpooling. Other businesses have experimented with company buses that transport
workers from nearby metro stations to offices, providing much-needed “last-mile connectivity.”
These programs have successfully shifted 30-50 percent of the targeted employees from cars to
public transport, resulting in reduced travel times and significant cost savings for employers. Not
only are employees more productive from shorter commutes, bus and other public transit
subsidies are much cheaper compared to private company buses.

For example, Wipro—a major IT business in Bangalore—worked with the Bangalore

Metropolitan Transport Corporation (BMTC) on specific routes designed to move workers more
comfortably and efficiently. This collaboration improved employees’ user experience, reduced
costs, and shifted commuters from private company buses or cabs to public transit. BMTC
introduced high quality bus services that were air-conditioned and convenient for WIPRO’s
employees and other transit riders. This initiative encouraged employees to commute by bus
rather that private vehicle and is credited with reducing employee GHG footprint by almost 16
percent in the first year of implementation.

Another example is the “I-Travel Smart” initiative from GENPACT—a business operations and
IT solutions provider in the city of Gurgaon. Demonstrating corporate social responsibility,
Genpact has focused on innovating long term transport solutions for employees. The initiative
has resulted in reducing travel distances by about 1.2 million km annually and has saved about
335 tons of CO2 emissions. Their four step strategy includes:

 A free shuttle service from nearby metro stations to all Genpact sites, addressing the issue
of last mile connectivity;
 A commuter guidebook for all employees containing comprehensive information about
alternative transport options;
 Preferred parking locations for employees who choose to carpool; and
 Designated bus services for employees, in partnership with Haryana State Transport,
Delhi Transport Corporation and Volvo.

Several other IT businesses have shown interest and are moving forward to implement TDM
measures as well. For example, Infosys, a major IT company with 180,000 employees, recently
announced to roll out its own TDM program over the next four years to reduce its employees
travel emissions.

Bringing TDM to a Citywide Level

Worldwide, TDM strategies have been shown to reduce traffic congestion as well as the costs of
building, maintaining, and operating city roads. In India, cities like Bangalore, Mumbai and
Delhi have proposed congestion charging initiatives like London’s, but these plans have hit
roadblocks. While several cities have drafted street parking policies, implementation seems
unlikely, due to oppositionfrom commercial business owners and car users.

City leaders need to recognize the value of TDM strategies—both to the private sector and local
communities—and support these measures by improving the quality of public transit without
compromising affordability. City governments need to implement appropriate parking policies as
a precursor to TDM to ensure success. Furthermore, strong communication campaigns are
necessary for educating the public about the harmful impacts of car dependence on health, safety,
and quality of life.

Building on Past Success

To address mounting car ownership, city leaders and decision makers need to implement a
diversity of TDM strategies. The successes of employer-initiated TDM measures demonstrate the
potential for citywide TDM and signal to political leaders that cost-effective solutions exist. It’s
time that city leaders in India recognize the benefits of sustainable mobility and incorporate
TDM strategies into their own public agendas. The future of their economies and their citizens
depends on it.

Tags: health and road safety, India, sustainable cities, traffic safety, transit-oriented development
(TOD), transportation