Wednesday, April 29, 2009
Externalities- CHERYL :)
Externalities occur when a party pays for services but the external environment or other people benefit from it. An example of externalities in Singapore is the Electronic Road Pricing (ERP) system. It is an electronic road toll system to ease congestion on the road. Singapore, a small city which experiences rapid industrial growth, has a problem with urban traffic congestion. The Land Transport Authority implemented a usage-based taxation system to counter the problems caused by traffic road congestion.
Basically, Singapore drivers who don’t have to urgently get to their destination would not take that route and go from another direction. How the ERP system works is that it charges drivers and motorists for using the roads in certain areas of Singapore at the peak hours. Charges are put on the drivers who use the restricted roads. The results have shown that the ERP system is indeed helpful in curbing the problem of traffic congestion in the urban areas of Singapore. Land Transport Authority (LTA) released figures that showed that within the restricted zone itself, traffic has gone down by about 13% during ERP operational hours, with vehicle numbers dropping from 270,000 to 235,000.
The ERP system is a positive externality because it benefits many others by charging individually. The amount paid is a flat amount, multiplied by the number of times that individual vehicle passes through the gantries. This creates a situation where drivers diversify their timing to travel to work so that they can minimize spending on the road tax. Accompanied with taxes that have to be paid when buying and maintaining a car, it is positive when one takes into account the reduced pollution emitted and lesser traffic jams on the road.
A negative externality was also produced with the introduction of the ERP system. Drivers who wished to avoid being charged for using the routes during the peak hours turned to other ways to get to their final destination. As a result, other roads became overcrowded and there were traffic jams there instead of the ERP-roads.
Cheryl :D
BZSE T01
Labels: externality
We Loved5:10 PM
April 2008