Question

COVID-related externalities. Provide a brief definition of the concept of externality. Provide a few examples from the ongoing pandemic where externalities are present. Suggest specific public policy measures to address such externalities.

Answer 1

Externalities
It referes to the cost incurred by a third party. It can be both positive and negative. An externality takes place when a third person is either benefiting or incurring losses in which he/she has no control over.

Example- During this pandemic everyone is compelled to follow the lockdown instructions even though he/she is not affected by it as a means of  safety precaution. However, this might be viewed as a negative externality because the non affected persons are also not able to go out of their houses as well.
Another example of such can be that the person is not affected and has visited a place where an affected person has contaminated, he/she might have a chance of communicating the disease.
A positive externality during this pandemic is that the environmental conditions has started improving which will benefit all.

Policy measures to address such externalities would be-

• Awareness programmes made available online so that people don't panic in such situations
• strict measures taken by the police force and municipality to maintain order and sanitize all the localities respectively.
• making safe and sanitized delivery of essential items at doorstep, etc