Externalities. Externalities. Externalities



To assess your ability to:

discuss the effects of externalities

discuss the relationship between externalities and willingness to pay analysis.



For this assignment, you will explore the effect of externalities on an infrastructure.

Infrastructure is the basic physical and organizational structures and facilities (e.g., buildings, roads, and power supplies) needed for the operation of a society or enterprise.

An example of an infrastructure is public transportation.



Possible Approach for this Assignment:

How do externalities impacted the development of your transportation infrastructure – both positively and negatively?

Related Readings:

The Environmental Impacts of Transportation

Author: Dr. Jean-Paul Rodrigue

“The issue of transportation and the environment is paradoxical in nature since transportation conveys substantial socioeconomic benefits, but at the same time transportation is impacting environmental systems.”


Sustainable Urban Growth and Development Impact Fees

Author: Gregory S. Burge Department of Economics University of Oklahoma

“Sustainable urban growth is generally defined as development that meets the need of current residents without compromising the ability of future residents to also meet their needs. Without effective management, rapid localized growth can compromise the adequacy of public infrastructure systems, fail to preserve open-space amenities, increase congestion, and degrade local environmental quality.”


Transportation Economics/Negative externalities


“The passions surrounding social costs and transportation, in particular those related to the environment, have evoked far more shadow than light. At the center of this debate is the question of whether various modes of transportation are implicitly subsidized because they generate externalities, and to what extent this biases investment and usage decisions. On the one hand, exaggerations of environmental damages as well as environmental standards formulated without consideration of costs and benefits are used to stop new infrastructure. On the other hand, the real social costs are typically ignored in financing projects or charging for their use.”




Action Items

  1. Identify an infrastructure you would like to explore for this assignment.
  1. Research how externalities impacted the development of your infrastructure – both positively and negatively.
  2. Write 2 pages that include the following sections:
  • Definition of externalities.
  • Provide an example of a positive externality associated with development of the infrastructure. Explain why.
  • Provide an example of a negative externality associated with development of the infrastructure. Explain why.
  • Discuss how the positive and negative externalities relate to the willingness to pay (WTP) analysis.


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