Thursday, October 14, 2010

Untaxed Externalities

Here's a question I was pondering recently.

What's the biggest negative externality that isn't taxed?

It's not going to be the usual things people think of - pollution, carbon dioxide (!=pollution unless you're the EPA, but that's another story), noise, that kind of thing. Even if the aggregate impact of pollution or CO2 is large, the individual impact of your car is pretty small. And while noise might cause a lot of irritation, it's hard to blast your stereo at a whole city. You could argue for something like dumping botulin in the water supply, but that is taxed - with a prison term.

The key criteria are both the cost to each person and the number of people that you can affect with a single action.

So here's my suggestion: traffic accidents on freeways.

On the freeway the other day (thankfully going in the other direction), I came across a car that had overturned. Traffic was backed up for about 5 miles behind it. Think about that. Even just counting the cars I passed (let alone the ones still to arrive) we had 5 lanes of traffic, 1 car every 15m or so equals 5 *1609 * 5 / 15 ~= 2682 cars. If each person had to wait an extra hour because of the jam and their time is worth, say, $15 an hour, you've just caused $40K worth of loss to the citizens of your city, over and above the cost to any car you hit.* That's not even including the people who missed meetings and dinners that were worth a lot more than $15 an hour to them. And while you'll get a slightly higher insurance premium, you won't pay anything to the people you inconvenience.

Not bad for half a second's carelessness.

*(this is an extremely rough calculation - to do it properly you'd need to consider the rate of cars entering and exiting, and the duration of the blockage, as well as the possibility of the blockage having memory even after it's cleared - my hunch is that the real number is even larger).


  1. I've thought about this a LOT, and I agree with you - that's the same conclusion I've reached.

    It's also occurred to me that a low level form of economic terrorism would be to create traffic jams on major highways.

    Three guys with rented minivans could totally FUBAR NYC traffic, without even a single ounce of explosives.

    ...and they could easily walk away and get into getaway cars.

    ...and repeat the process the next day.

  2. Interesting. It's not dissimilar from what the IRA did in London, announcing their bombings in advance so people weren't killed but London was brought to a standstill. Sure beats shooting up a few random policemen in Belfast for getting the average Londoner's attention.

    Behold the glorious traffic martyrs of the Jihad, selflessly crashing their cars and accepting higher insurance premiums in the name of Allah!

  3. In recognition of the externality costs of delayed commuters, the Japanese train companies now systematically charge families of people who suicide on their tracks considerable money.

    But this reflects the conscious choice to suicide in a particular place, so they don't charge people who were careless and fell on the tracks.

    People who flip their cars on highways on purpose should probably be charged in a similar way.