EXTERNALITIES - METHOD AND ILLUSTRATION

A.C. HEMALATHA

February 22, 2003

Externality connotes the positive or adverse effects manifested due to the unintended actions of one agent or group of agents on another or group of agents. The externalities arise when costs are borne without benefits received or benefits are received without ant costs borne. According to Partha Dasguptha (1982), externalities can be unidirectional, reciprocal and intertemporal in nature.

Some of the methods used to measure externality are contingent valuation method where we ask the respondents to reveal his or her willingness to pay (benefit) or willingness to accept (loss) for a change in environmental good. In hedonic method for valuing any good or service along with market price we look into environmental attributes contributing for valuing that product. In dose response method, the dose of pollutant emitted into the atmosphere is correlated with effect on human and animal health.

The case study chosen here has been conducted in Muthalipalyam village in Coimbatore district of Tamil Nadu where there has CPR degradation mainly due to the action of dyeing industries.

Both secondary and primary data has collected. The primary data has been collected from 3 categories such as farmers, non-farmers and agricultural laborers at a rate of 50 respondents from each category. The data are analyzed using percentage technique, contingent valuation method to estimate WTP by respondents for improvement in village CPR, and hedonic method is used to value the land.

The results indicate that the industrial effluents let out to river and tank CPRs increased the percentage of abandoned wells from 8 percent during eighties to 62 per cent by the year 1999-2000. The sheep population increased from 190 to 282 during the last 30 years, which was due to increased fallow lands. The cropped area reduced by more than 60 per cent during the period due to decline in soil fertility and water quality. The total averting expenditure worked out to Rs.623 per ha. The WTP for improved village tank showed that the majority of non-farmers (40 per cent) were WTP in the range of Rs.250 to Rs.500 and more than 40 per cent of agricultural laborers had WTP less than Rs.250 per annum.

To prevent CPR degradation along with traditional management, the local people should be trained so that they can negotiate with government on behalf of villagers. To involve villagers in the management practices, contributions must be raised. People as individuals can't prevent degradation, but through group activity and with support of government can caution the violators about the consequences of free-riding behavior

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