Externality: Renewal of Books
When one borrows a book from the National Library, the loan is only for 3 weeks. To extend the loan by another 3 weeks, one has to pay a rate of $0.50 per book for the renewal of deadline for that particular book. However, if you’re just late in returning the book for a day or 2, the fine for each day would be $0.15 per book.

However, recently the National Library Board has made a change to this practice of borrowing and renewal of books. Now, one can renew their books for free for another 3 weeks, thus enabling the borrower to hold on to the book for a total of 6 weeks. This new change of rules has made borrowing books from the library difficult as the each library has an average of 2 copies of the same title, and since the implementation of this rule, each book loaned out from the library has an average of 4 weeks loan.

Thus, the current renewal practice is a both a positive and a negative externality.

It is a negative externality because the borrower would get to have the book for another 3 weeks without paying or making any form of compensation to the library or the other readers for holding onto the book for a total of 6 weeks. Other readers who may be waiting for the book would then have to wait for another 3 weeks because the borrower has extended his loan.

It is also a positive externality in the way that all borrowers/readers can extend their loans/deadlines of the books for another 3 weeks for free, thus allowing them to loan the book for a total of 6 weeks.

~Francine Wee

Labels: externality

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