Question

Consider two ways to protect your car from theft. The Club (a steering wheel lock) makes it difficult for a car thief to take your car. Lojack (a tracking system) makes it easier for the police to catch the car thief who has stolen it. Which of these types of protection conveys a negative externality on other car owners? Which conveys a positive externality? Do you think there are any policy implications of your analysis

Answer 1

Answer:

1. The club makes it difficult for the thief to steal the car and therefore when drives the car, he might face difficulty which can lead to accidents with other cars. This is clearly a negative externality which effects other people negatively.

2. A LoJack makes it easier for police to track your car. When a thief steals your car, they can track it without involving other people on the road. This a reflection of positive externality.

3. There could be several policy analysis keeping in mind car theft issues. policymakers can focus on policies that would cater to the protection mechanism for car theft and come up with a solution to reduce externalities.