Externalities in Formula 1 Racing

In 2021, a Dutch court struck down environmental activists' case against the construction of a Formula 1 track when it threatened endangered species in the area. The negative externalities produced by the construction of the track were considered in a context of social and economic gain from the construction of the racetrack and ultimately the Formula 1 circuit was granted an exemption from the constraining legislation (the 2017 Nature Conservation Act) which prohibited harm caused to plants or animals from human activity. This provides interesting insight into the role of government intervention in regulating negative externalities. That is, at least from my observations, some externalities matter more than others and not all externalities are salient enough to warrant intervention – just as the negative externalities on the endangered species warranted no intervention. The Dutch court made the argument that the social marginal benefit of the track construction exceeded the social marginal cost of the endangered species lost. Or, rather, that the construction of the track would allow for an expected "economic impulse for Zandvoort and the circuit" that exceeded the benefit of protecting these species because it catered to "a sporting event with one of the largest audiences worldwide."

In the above case, the inability to assign clear property rights to either the Dutch citizenry or the circuit for the land in question keeps the parties from reaching a Coasian solution. A further problem exists here: even if property rights did exist, the racing circuit has far greater bargaining power (in terms of funding) than do environmental activists in the Dutch citizenry. Thus, an outcome in which the circuit's property rights take precedence over the environmental activists' concerns might not represent an efficient allocation of resources or a greater present and future benefit to society.