Jan 17 2011
“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.
- Why don’t all states simply ban the use of lead bullets by hunters? Is this solution socially optimal?
- Besides corrective taxes and subsidies, how could government reduce the demand for lead bullets and increase demand for “green” bullets?
- How will Arizona’s use of coupons demonstrate a market-based approach to externality reduction?
- 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?”
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