The Externalities Of Air Pollution In India Economics Essay

Nowadays, air pollution of the developing countries becomes more and more serious. And this essay will discuss the externalities of the air pollution in India. It will begin with explanation of relevant concepts of externalities which will be demonstrated by using a current news article about the air pollution in India. Next it will discuss common measures taken by governments to deal with negative externalities before a recommendation is finally made to tackle the problem of air pollution in India.

In economics, the defining feature of an externality is likely to arise if a third party is affected by the decisions and actions of others in the forms of costs or benefit (Mankiw, 2008). The third party is the party which is not involving in the activities directly. The externalities can be divided in to two segments. One is negative externality, which occurs when the third party pays for the external cost. Another is positive externalities, which means that the third party gets the benefit from the externalities. Education is a good example of the positive externalities because students get knowledge from education. When they graduate, they are better prepared in terms of subject knowledge and skills needed for a particular job. As for the negative externalities, air pollution can be one good example. If a car on the road exists gases which may cause illnesses to the people, the sick people would pay for the medical charges. And the medical charges are the negative externalities.

Externalities emerge when there is a difference between private cost and social cost. Private cost is the cost to individual consumer or firm of consumption. Social cost is the cost that not only the individual consumption, but the rest of the society has to bear as well (Anderton, 2008 p96).

According to Anderton (2006, p121), the external cost exists when social cost is greater than private cost. Oppositely, when private cost is smaller than social cost, the external benefit is said to occur.

According to the news reported by Economist.com on November 6th 2012, the air pollution in India becomes more and more serious. Like other big Asian cities that have been developing fast, the air quality is decreasing rapidly. Emissions from the chemical industry, car pollution and the burning of the sulfur coal put the environment in a difficult situation. The nitrogen oxide level in India has double, compared with same period last year. The PM10 (any dust with a diameter less than 10 micronmetres) also got doubled. Other kinds of dangerous tiny particles exaggeration are over 8 times (The Economist, 2012). This difficult situation causes negative externalities. As it was reported in the news article, India newspapers are filled with articles about asthma, wheezing children at clinics, an epidemic of grumpiness and gloom and so on. An estimate shows that Delhi smog kills 10500 people a year because the smog can trigger heart or asthma attacks, and articulate matter causes cancer (The Economist, 2012).

Negative externalities, such as the respiratory diseases which are caused by the air pollution, will lead to market failure. Market failure is a situation that the market cannot allocate goods and services effectively. There are many reasons for the market failure, and negative externality is one of reasons. It is the third party instead of the company or the industry pays for the external cost of products. So the price of products will be lower than the value of it. This will cause the distribution problem of market. Unless government gives an effective measure to deal with it, the big problem will come to the market.

Generally, there are three methods to combat negative externalities, which are taxation, regulation and permit.

The first one is taxation and subsides. Taxation means that officer levy a tax on the polluters whose pollutants are excess the prescribed amount to increase their prime cost and give subventions to the firms which limit their pollutants in the prescribed amount. The air pollution comes from the industrial emission, car exhaust, burning of sulfur coal and so on. And the taxation can control these pollutions effective. Government can levy pigovian tax on pollutants, such as the emission tax, coal tax, car exhaust emission tax, carbon tax and so on. These show that taxation can deal with a various kinds of pollution. Facing the tax, companies will be induced to buy the pollution-abatement equipment or otherwise charge production techniques to decline the amount of pollution (Maunder, Myers, Wall and Miller, 2000, p.184). Also the level of pollutants is created by the authorities, so those polluters which create a higher level of negative externalities would make a greater incentive to decline their pollutants than those polluters which make lower level of negative externalities (Anderton, 2008). Also government gives some subventions to the factories which reduce the emission of the pernicious gases. In such ways, the externalities of the air pollution can be resolved effectively. But the high tax may cause disadvantages. A high tax may obstruct the development of industrialization. It probably would bring about a decreasing of the quality of life. For example, the high tax can cause a decline of salary. As a result it possibly would lead to a social turbulence.

Secondly, government can use regulation. The regulation refers to that government use the power of law to limit the emission of the pernicious gases. And it may probably help the India government to deal with the air pollution effective. Government sets a prohibition of pernicious gas emission on the industry area and uses this way to limit the emissions. And also government can make some punitive measures to help government restrict the industries polluting the air availably. Thus using this mode will buffer the air pollution and the externalities of the air pollution. The regulation usually would use the force of law and all the things that the industries do to break the regulation is illegal. But the regulation is not always useful. There are some industries which cause the air pollution may not follow the rule in pursuit for greater profit and also the supervision is not always effective.

Also government can use the permit to help to limit the air pollution. Permit is just like a license without which the industry cannot make pollution Also the industry cannot go over the limit. If they do so, they would also be punished. To get the permit, the company needs to pay. And also the government would restrict the quantity of the permit, thus, the air pollution would be in a controllable range. In addition, the license also can be traded, a company or industry can sell it to another company or industry which needs it. As a result, it can help distribute the permit achieve the best state of allocation. Notwithstanding, the permit is not faultless. It would lead to unfair treatment. Government does not know which companies or industries should be given the license, and it would cause the thoughtless of the distribution. Deeply, it may cause bribery between the industry and government official.

Clearly, all of these measures could be used to combat the air pollution and the externalities that the air pollution causes in India. But there are some negative influences that the government needs to consider. As it is mentioned above, taxation may cause the decline of the life quantity. Also the supervision could not always been effective. Compared with the other two measures, permit seems to be the best solution to this problem. The India government can provide the licenses to limit the emission and demarcate the amount of industries emission. Also permit can help the government know that how many pollutants the industries makes, create an eco-system and help the government to protect the environment.

In summary, air pollution in India becomes progressively worse. India government needs to deal with the pollution in an effective mode. India officers have three kinds of methods to attend to the air pollution. But the regulation and taxation would cause some negative influences. Permit is an immediate mode. By using this mode, government and industry would establish an relation which can make government supervise the air pollution more availably. Moreover, pollution license can also be traded, this also may make the air pollution’s distribution can achieve the best. Ergo, permit is the best way to deal with India air pollution and the externalities of the India air pollution.