In: Economics
. Gino’s barbeque is known for its famous spareribs, which are cooked in an open pit.
However, some neighbors complained about the smoke, and the city adopted an
ordinance that made such open pits illegal. Could this ordinance be a regulatory
taking? If so, what would be the measure of Gino’s loss? How might the city seek to
avoid paying compensation?
To understand this situation well, we need to understand what an externality is. An externality is the effects to a party or multiple parties due to the activities conducted by some other individual or group that doesn't involve the initial party.
Externalities can involve both positive and negative effects and so they are defined as positive externalities and negative exteranlities.
In this case given , we see signs of negative externalities due to the activities conducted by Gino's barbeque that led to the emission of smoke which is a hazard to the general public.There are many real life cases of negative externalities that occurs as a result of an individual's or company's operation . (eg : Pollution and toxic wastes from factories and production plants)
To avoid and prevent the effects of negative externalities , governments are to impose laws, regulations and restrictions that find the party responsible be guilty of the same activity and impose fine/compensation for the same. These regulations force factories and manufacturers to invest in filteration systems and other tech that enables them to reduce the toxic elements that is released in the process of production.
In the above case , making open pits illegal is a way to regulate and prevent businesses like Gino's barbeque to emit hazards such as smoke in the air.
With this type of regulation in action , Gino's barbeque is made to invest and adopt a new method to cook spareribs that doesn't emit smoke as it did while cooked in an open pit. If this method isn't adopted by the business then, it is bound to pay compensation , incur losses and is has the potential risk of losing the business altogether .