Saturday, July 31, 2010

Wind Mill energy provider is buying peoples silence...no, really they are BUYING silence! Very mob-like AND has economists seal of approval.

Wind mills apparently cause alot of noise...whoosh, whoosh, whoosh, all day and night long.  This noise produces what economists term a negative externality.  It is a negative by-product of production for which the producer does not explicitly pay for.  It makes the cost of production lower than what is should be and produces additional profits at the expense of society at large.  Often in cases like this  government steps in and either regulates the firm or imposes fines.  However, there is a market alternative that can take care of the problem.  The energy company can pay the people who are "hurt" by the negative externality for there inconvenience.  If an agreed upon price can be reached, then there is no need for government regulation.  Obviously, there are difficulties with this approach, but can be effective in the right circumstances for both the producer and the affected. 

NYTIMES: Turbines Too Loud for You? Here, Take $5,000
""Residents of the remote high-desert hills near here have had an unusual visitor recently, a fixer working out the kinks in clean energy. Patricia Pilz of Caithness Energy, a big company from New York that is helping make this part of eastern Oregon one of the fastest-growing wind power regions in the country, is making a tempting offer: sign a waiver saying you will not complain about excessive noise from the turning turbines — the whoosh, whoosh, whoosh of the future, advocates say — and she will cut you a check for $5,000.""
 Another simple example---lets say you want to have a party with a live band in your backyard.  This is going to affect your neighbors (assuming you are not inviting them to come) with loud music for half the night.  This is the non-monetary cost you are imposing on your neighbors and you are not fully accounting for all the costs for your party.  To keep them from calling the police and ruining your party, you could offer them compensation to not call the police.  If you can agree upon a price then you are fully accounting for all the the costs of your party.  You have eliminated the negative externality...The noise remains, but you have internalized the cost....
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