6.1 Tragedy of the commons  (Page 4/20)

Conversely, a positive externality    is a benefit associated with an action that is not borne by the person who chooses to take that action. Students who get flu shots in October, for example, gain a private benefit because they are less likely to get the flu during the winter months. However, their classmates, roommates, and relatives also gain some benefit from that action because inoculated students are less likely to pass the flu along to them. Positive externalities exist in the world of actions and products that affect the environment:

• A homeowner who installs a rain barrel to collect unchlorinated rainwater for her garden also improves stream habitat in her watershed by reducing stormwater runoff.
• A delivery company that re-optimizes its routing system to cut fuel costs also improves local air quality by cutting its vehicle air pollution emissions.
• A farmer who plants winter cover crops to increase the productivity of his soil will also improve water quality in local streams by reducing erosion.

In situations where an action or good has a positive externality, the private marginal benefit that shapes the behavior of an agent is lower than the marginal benefit to society as a whole, which includes the private marginal benefit and the external environmental marginal benefit. The efficient outcome would be where the social marginal cost equals the social marginal benefit (labeled Q _efficient in Figure Positive Externality ). In the presence of a positive externality, the free-market outcome will tend to promote less of the good or activity than is socially optimal because the agents do not reap all the benefits. Too few rain barrels will be installed; not enough delivery routes will be re-optimized; too few acres of agricultural fields will have cover crops in the winter months. Again there is deadweight loss (the shaded triangle in the figure), but this time because the marginal social benefit associated with some of the units not produced would have been greater than the marginal costs of producing them. Just because an externality is positive rather than negative doesn’t mean there isn’t a problem; public policy could still make society as a whole better off.

Public goods and common-pool resources

Market outcomes are almost never efficient in two broad kinds of cases: public goods and common-pool resources. The market failures in these settings are related to the problems we saw with negative and positive externalities.