GREENHOUSE GASES

When an individual drives a car, heats a house, or uses an aerosol hair spray, greenhouse gases are produced. In economic terms, this creates a classic negative externality. Most of the costs (in this case, those arising from global warming) are borne by individuals other than the one making the decision about how many miles to drive or how much hair spray to use. Because the driver (or sprayer) enjoys all the benefits of the activity but suffers only a part of the cost, that individual engages in more than the economically efficient amount of the activity. In this sense, the problem of greenhouse gases parallels the problems that occurs when someone smokes a cigarette in an enclosed space or litters the countryside with fast-food wrappers. If we are to get individuals to reduce production of greenhouse gases to the efficient rate, we must somehow induce them to act as though they bear all the costs of their actions. The two most widely accepted means of doing this are government regulation and taxation, both of which have been proposed to deal with greenhouse gases.