Negative Externalities: Smog and the Environment
Though we did not cover the concept of negative externalities and the El Farol Bar Problem, I thought it would be pertinent to discuss this University of California (Berkeley) article which discusses the concept of smog as a negative externality imposed upon the environment. In essence, the price payed at the pump or for energy bills does not reflect the true cost of the energy production or consumption and its effect on the network as a whole (in this instance, ecological and social networks). Smog damages the atmosphere by polluting the essential mix of gases that humans need for healthy respiration. Furthermore, acid rain damages forests and other vital ecosystems. The death of forests is not just a tragedy of habitat loss and biodiversity; rather, it causes lower production of timber for construction and damages vital national resources. Holistically, any minor change in acidity (pH) in the environment can cause devastating ecological and biological effects.
So, how does this relate to the course? We briefly discussed the concept of a negative externality and formulated a few thought experiments and models around the concept; particularly, we discussed Braess’s Paradox and the El Farol Bar problem. This excerpt from the textbook summarizes the concept nicely:
These are fundamental contrasts: with positive externalities, there exist self-ful lling
expectations and a natural set of outcomes to coordinate on; with negative externalities,
any shared expectation of a fi xed audience size will be self-negating, and the individuals
must instead sort themselves out in much more complicated ways. Given this complexity,
the El Farol Bar problem has become a testing ground for a variety of models of individual
behavior.
The interconnections of ecology are extremely complicated networks, essentially. Thus, the environmentally-approriate equilibrium of emissions and price will be difficult to find in a social system of human beings. The more emissions that are produced, the more everyone’s payoff drops (though it may appear to do the opposite in the short term).
Source:
http://are.berkeley.edu/courses/EEP101/spring03/AllThatSmog/extern.html
– The 10th Doctor