A policy maker argues that congestion on the roads can be solved by private ownership of the roads. He argues that if the roads were privately owned, then the externality of congestion would be fully internalized and solved by the market. Discuss this by first explaining the externality problem that leads to congestion, and then explain whether the private market would deliver the efficient level of roads.

Road congestion creates externalities such as increased time for travel, more pollution in a city, more likelihood of accidents, more stress for road users.

This externaliity is caused because road users think of the private benefits that they can get from using the road but they do not take the social cost into account. We have lots of drivers on the road and non of these drivers takes cognizance of the cost that other drivers get because of this.

If road are private, congestion is going to fall and there would be excludability. But this is a public good, turning it to a private good would cause issues. Private markets benefits out is positive externalities.

annyksl annyksl · Answer 2 · 2021-10-28T16:28:45+02:00

The term "externality" refers to elements and situations that occur off-road and cause congestion.

In this regard, we can say that:

The externality of congestion is created by the lack of urban infrastructure, the excess of vehicles on the streets, the lack of traffic inspection, and the lack of road maintenance.

All of this allows for an accumulation of vehicles on urban roads, generating congestion, which affects the city in an imposing way.

These problems have been treated as public order problems as roads are a public asset managed by the government. Many people believe that government management is the main problem and that if the roads were managed by private companies, these problems would be eliminated.

Although we can recognize that many of these externalities would be solved by private companies, treating the use of roads as a private asset would not solve the problem of congestion, as it would create other externalities, especially about the freedom to use roads.

With this, we can conclude that the externality of congestion would not be reduced with the use of private companies, but maintained with other factors.

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