Nova workboard

a blog from young economists at Nova SBE

Should I take the car or not?

Riding a car is a clear case of negative externality in consumption, no doubt about that. Every time you turn on the engine of your car, you are causing a harmful effect on others, due to congestion, carbon emissions, traffic accidents, just to name a few. The intensity of this problem differs from country to country, and from regions within a country.

In the USA, this problem is very severe and according to Dubner and Levitt (Freakonomics), drivers should pay at least an extra 10 cents per mile to cover the external cost caused by their driving.

To fix or reduce negative externalities in consumption, the economic system fixes taxes which make consumers pay for the costs they are causing, and at the same time discourage the consumption of these goods.

Focusing now in the example of Lisbon, we can see that this is put into practice: drivers pay high taxes for petrol, high tolls for highways and bridges and also high prices for parking, especially in the city centre. Although this happens, there are still two issues that concern me: first of all, the money paid by the drivers should be used to reduce the externalities caused by driving and it is not; and secondly, there is still a lot of traffic in the city.

The explanation I find for the traffic that remains in the city is the fact that for some people there aren’t any good alternatives to the private car.  People should be motivated to take the public transport or get on the bicycle for their daily trips because they find it to be a better solution than driving.

The price of a one-way metro ticket in Lisbon raised 33% in less than 2 years (between 2011 and 2013), and this did not necessarily bring higher conditions to users. Apart from the opening of a few more stations, the metro still does not take you everywhere you want to go in the city, it is considerably slow, specially out of peak hours, and has regular technical problems. Roads and sideways in Lisbon aren’t made for bicycles either, adding to the danger caused by the stressed drivers and walking is obviously not a good solution for most people’s daily life. The problem during the night gets even worse: after 1am the metro is closed and there are only very few buses that pass more or less every hour.

The conclusion I reach with this example is that, when a good has negative external effects over its consumption, the first economic concern should be to reduce the consumption of that good as low as possible. Only after come the taxation measures since in most cases these do not correct the distortions caused, but essentially act as redistributive policies.


Margarida Ortigão #647


Author: studentnovasbe

Master student in Nova Sbe

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