Jan 17 2011

Market Failure and Bullets

Should hunters switch to ‘green’ bullets? – CNN.com

Chis Rock once said,

“We don’t need gun control, we need bullet control. I think a bullet should cost $5,000, cause if a bullet cost $5,000 there would be no more innocent bystanders.”

Chris Rock may not have had market failure in mind when he wrote this joke, but he unknowingly demonstrated a perfect example of a case in which the over-consumption of a particular good results in spillover costs on third parties not involved in the original transaction (the “innocent bystanders”). In economics, this is known as a negative externality of consumption, and is considered a market failure because without some kind of government intervention, too much of the harmful good will be produced and consumed: in this case, too many bullets are consumed causing harm to society.

I always thought Chris Rock’s idea of taxing bullets was a good idea, but never thought I’d find a real example of such a solution to market failure, until now. Although the bullets in the article below are those used by hunters, whereas Chris Rock’s bullets are probably those used by gangsters, the economic concepts underlying the market failures are similar.

Three years ago, Phillip Loughlin made a choice he knew would brand him as an outsider with many of his fellow hunters:

He decided to shoot “green” bullets.

“It made sense,” Loughlin said of his switch to more environmentally friendly ammo, which doesn’t contain lead. “I believe that we need to do a little bit to take care of the rest of the habitat and the environment — not just what we want to shoot out of it.”

Lead, a toxic metal that can lower the IQs of children, is the essential element in most ammunition on the market today.

But greener alternatives are gaining visibility — and stirring controversy — as some hunters, scientists, environmentalists and public health officials worry about lead ammunition’s threat to the environment and public health.

Hunting groups oppose limits on lead ammunition, saying there’s no risk and alternatives are too expensive…

Lead bullets cause harm to the environment and possibly to human health. The private consumption of these bullets exceeds what is socially optimal, while “green” bullets, on the other hand, are under-consumed by private individuals. There are two market failures occurring here, and they can be illustrated as follows:
When markets fail, government action is sometimes necessary to achieve a more socially optimal allocation of resources. The bullet market represents a market failure because too many harmful lead bullets are being consumed while not enough environmentally friendly “green” bullets are being consumed.

The graphs above show the impact of corrective taxes and subsidies in resolving these market failures. Whether or not governments will pursue such corrective policies has yet to be seen. A couple of states, however, appear to already understand that market failures require government intervention.

Last year, California banned lead bullets in the chunk of the state that makes up the endangered California condor’s habitat. The large birds are known to feed on scraps of meat left behind by hunters. Those scraps sometimes contain pieces of lead bullets, and lead poisoning is thought to be a contributor to condor deaths.

Arizona, another condor state, gives out coupons so hunters can buy green ammunition. Utah may soon follow suit.

Discussion Questions:

  1. Why don’t all states simply ban the use of lead bullets by hunters? Is this solution socially optimal?
  2. Besides corrective taxes and subsidies, how could government reduce the demand for lead bullets and increase demand for “green” bullets?
  3. How will Arizona’s use of coupons demonstrate a market-based approach to externality reduction?
  4. And this one is from the authors of the Environmental Economics blog: “Do you think the deer care which kind of bullets the hunters use?”

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

13 responses so far

13 Responses to “Market Failure and Bullets”

  1. Denny Haneyon 30 Nov 1999 at 1:00 am

    It is my first visit here. I discovered some important stuff rrnside your blog especially this discussion. Compete the best work.

  2. Ollieon 13 Mar 2009 at 7:39 pm

    Sorry but i don't quite understand why there is an argument for lead bullets at all. Especially with all the "go green" movement occurring right now. Lead has been taken out of almost every other product since the discovery of dangers. If the green bullets are subsidised with coupons then there is an incentive for hunters to "go green", lead bullet producers can adapt and start making more environmentally friendly ammunition.

    I think the situation can be likened to that of the US car industry. GM continued to make crappy pickups that did not appeal to the modern market and weren't sustainable. If the lead bullet producers don't adapt to the modern market then they should go down like GM should have.

  3. Kaion 15 Mar 2009 at 5:49 am

    The reason why States hesitate to simply ban the use of lead bullets lies in a few disadvantages which make it less socially optimal than f.e. taxing them. Since the ban includes shutting the market down, many jobs will be lost. Also, it would be very costly for the governments to initiate and police the ban.

    However, governments could set a "cap and trade"-programm for lead bullets in motion, to decrease its negative externality of consumption. Limiting the number of lead bullets produced, will drive their price higher, lower their quantity demanded, and ultimately shift the hunters demand over to their substitutes – the "green" bullets.

    Arizona does this using a different method. The coupons give consumers an incentive to use green bullets by increasing their marginal private benefit (near) to their marginal social benefit plus the social optimal point. At the same time, this decreases the demand of the toxic lead bullets

  4. Gavinon 16 Mar 2009 at 9:47 pm

    If lead bullets were banned, as proposed by question 1, then problems with obiding to that rule would occur. Yes there would be less people hunting with the lead bullets, but there would then be people that illegally hunt with the lead bullets. So banning them would just cause people to break the law, but wouldnt stop them from using lead bullets. I agree with what Chris Rock said. If the cost of bullets did go up that much, the number of lead bullets bought and used would drop severely. A tax on the bullets would also help, because that would decrease the supply, and thus the price would go up

  5. Ultan Whelanon 16 Mar 2009 at 10:32 pm

    States do not want to ban lead bullets because the entire market would then disappear and cause massive job losses. Instead, most states would probably try to wean corporations off of lead bullets slowly so that they can adapt and change to the production of "green bullets". Taxing the companies could improve this and the money gained from this tax could be used to either subsidize or advertise "green bullets". Arizona's approach will increase the demand of "green bullets" by giving the coupons and will push the marginal private benefits to the socially optimum quantity, thus partially eliminating the problem. Unfortunately, internalizing the negative externalities of lead bullets and positive externalities of "green bullets", does not internalize the externality done towards the environment by killing deers or and y other game.

  6. Ollieon 17 Mar 2009 at 5:38 am

    As i said, the Lead bullet producers could switch to green bullets, especially if it is subsidised. If companies do not adapt to the current market preferences and climate then the free market economy will let them fail.

  7. Akhilesh Dakwaleon 20 Mar 2009 at 10:02 am

    This is kind of like when alcohol was prohibited. Illegal consumption increased everywhere. Using more environmentally friendly bullets would surely just increase the quantity of bullets illegally consumed. Most of the public with guns is not very wealthy. Some may have grown accustomed to their lifestyle of frequent hunting. Instead of paying large sums of money, they would find alternate ways to obtain the lead bullets. So needless to say, any major change in prices of bullets would definitely cause problems. No one will take drastic measures until a terrifying discover is made.

    Answering to question #4, the deer wouldn't care which type of bullet was killing it. The plants and animals that come in contact with all the missed shots would definitely prefer "green bullets" over lead.

  8. Pilar M.on 31 Jan 2011 at 10:06 pm

    Discussion Questions:

    Why don’t all states simply ban the use of lead bullets by hunters? Is this solution socially optimal?

    That solution would be surely socially optimal because the lead in the guns is depositing negative external costs on a third party (the society). This means that the MPC of the hunters is not taking into account all the external negative costs, which does the MSC curve. Thys, there is an overallocation of resources towards lead, which is bad for society.

    Besides corrective taxes and subsidies, how could government reduce the demand for lead bullets and increase demand for “green” bullets?

    The government could make the price of green bullets (a sort of substitute to lead bullets) decrease by subsidizing the buyers or by giving a discount (by e.g. coupons) on the purchase of green bullets. Hence, this might decrease the demand for lead bullets and increase the demand of green bullets.

    How will Arizona’s use of coupons demonstrate a market-based approach to externality reduction?

    As mentioned before, the demand for green bullets coud increase while the demand for lead bullets would decrease. However, this would not necessarily shift the negative externality costs onto the private producers of lead but it would increase the demand for green bullets making demand shift to the right and hence increasing the the quantity demanded of green bullets. With this solution, the MPB curve of green bullets could be now equal to the MSB curve.

  9. Markel Zuritaon 26 Feb 2011 at 6:24 pm

    Why don’t all states simply ban the use of lead bullets by hunters? Is this solution socially optimal?

    – States don't ban the use of lead bullets by hunters because it would make the entire lead bullet market collapse and would cause many people to lose jobs. The solution is not socially optimal because people will be unemployed and many hunters may decide to stop hunting since they may not be able to afford the costly green bullets.

    Besides corrective taxes and subsidies, how could government reduce the demand for lead bullets and increase demand for “green” bullets?

    – Governments could reduce the demand for lead bullets and increase demand for green bullets by proving incentives to the hunters to encourage the purchasing of green bullets such as coupons which make the price of green bullets more affordable. Governments could also initiate large advertising campaigns to discourage the use of lead bullets.

    How will Arizona’s use of coupons demonstrate a market-based approach to externality reduction?

    – Arizona's use of coupons demonstrates a market-based approach to externality reduction by providing an incentive for hunters to buy green bullets instead of lead bullets. Since hunters are aware of the health problems associated with the use of lead bullets, if governments offer coupons which reduce the price of green bullets and make the prices between the two types of bullets more similar, hunters will therefore choose green bullets. Green bullets will therefore no longer be under consumed and the social benefit curve will shift towards the socially optimal point, therefore reducing the negative externality of consumption which occurs when lead bullets are overconsumed.

  10. Ignacioon 02 Mar 2011 at 11:20 am

    2.Besides corrective taxes and subsidies, how could government reduce the demand for lead bullets and increase demand for “green” bullets?

    Well besides these two approaches which personally are the best approach, due to the fact that hunters and other bullet buyers are more concerned about the price of the bullets than the harm that it causes society. However another way to reduce the demand for lead would be to educate bullet buyers about the effects it has to society and how it may affect them in different ways. An example that comes to mind is cigarrettes boxes, Bullet boxes could also have that small add which informs people about the harm being caused, in the case of cigarretes " Smoking is hazardous to you health and the people around you".

  11. Kenon 20 Apr 2011 at 7:27 pm

    Shooting lead or lead core bullets out of guns is not our harming envioroment. Eating wild game taken with lead or lead core bullets is not harming anyone. I'm proof of that, I'm 57 years old and have been shooting and hunting all my life. I have been casting lead bullets for pistols, rifles, and muzzle loaders ever sence high school. The people that I work with tell me that I'm in better shape than most of the younger people around here, guess why it's because I'm alot more active that most people. This comes from my love of the outdoors, hunting, fishing, and photographing wildlife. This all gives me a reason to stay in shape so that I can continue to do these things that I love doing on my off time. These young people nowdays spend most of their time on a computer or playing on a cell phone. How much exercise are all these people getting nowdays? Tell me which one is more detramental to ones health? The chance of lead poisoning from guns or radiation from computers and cell phones. People get real here. When I was a kid we where always outside, nowdays you"ll see the kids in my neighborhood get off the school bus, and can drive threw the the neighborhood 30 minutes later and not see any of them.

  12. Kenon 20 Apr 2011 at 9:19 pm

    WE are also dealing with these non-native Canadian wolves that are destroying our native wildlife in this country. Another bunch of lies and propaganda from another anti-hunting crowd feeding off of peoples emotions.

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    Market Failure and Bullets | Economics in Plain English

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