Alternative Energy, A Solution to Negative Consumption Externalities

Pollution is one of the most explicit examples of a negative consumption externality. In The West Wing Season 6, Episode 5, the Whitehouse Deputy Chief of Staff Josh Lyman, while test driving an SUV, totals a Prius. The authors of the show set up this episode to discuss the problem of negative consumption externalities. Negative externalities are produced when people drive cars that emit large numbers of fossil fuels. Gruber discussed three: environmental externalities, increased damage to roads, and safety externalities. In this scenario, the private marginal cost equals the social marginal cost but the private marginal benefit is higher than the social marginal benefit. This is because the drivers who consume the cars that produce negative externalities do not have to pay for the damage done to those around them. The amount of damage done to other people is the marginal damage.

In this clip, the Deputy Chief of Staff is discussing possible energy alternatives with experts. He is given this project after the media writes a story about his running into the Prius. The government is seeking ways to deal with negative consumption externalities, specifically the  environmental impact of fossil fuel emissions. The goal of the government is to have firms provide to consumers goods that produce less negative externalities. The experts that Josh meets with in this clip work to create solutions that close the gap between the private marginal benefit and the social marginal benefit.  With government incentives, firms are more likely to produce goods that are more environmentally friendly as opposed to those goods that produce negative externalities. As a result, when consumers use these goods, the marginal damage will be less because the products will produce fewer negative externalities.